ESG—short for Environmental, Social and Governance—is all the buzz in the business and investment worlds. But what exactly is ESG? And what is Wharton doing in this emerging field? Witold (Vit) Henisz, the recently appointed Vice Dean and Faculty Director of the ESG Initiative at the Wharton School, answers your questions.
Focus on ESG
The ESG Initiative at Wharton is harnessing the power of business to "solve the social problems incident to our civilization"
Fall/Winter 2022
Q: What is ESG?
ESG refers to the environmental, social and governance factors that are relevant for business decisions and financial calculations, particularly in the medium to long term. Too often, ESG factors are omitted from, or underweighted, in the spreadsheets, models, and frameworks that guide short-term decision-making.
Q: This summer, Wharton unveiled the new ESG Initiative. Tell us more about this.
Dean Erika James has identified impact in the ESG conversation as one of her top strategic priorities for the School and for her leadership. In response, we brought together four existing centers and labs that were already conducting frontier research and offering student programming: the Wharton Climate Center (formerly known as the Wharton Risk Management and Decision Processes Center); the Impact Investing Research Lab (formerly the Wharton Social Impact Initiative); the Political Risk and Identity Lab; and the Zicklin Center for Governance & Business Ethics. By bringing them together, we can better leverage, extend, and elevate their activity as part of a broader external conversation on ESG.
Q: How do you see the ESG Initiative growing over time? What is your vision for the program?
Our vision is to influence the way investors, consultants, and executives value ESG factors in their investment and strategic decisions so that the medium- to long-term risks and opportunities associated with climate risk, pollution, work practices, human rights, and corporate political activity are better incorporated into short-term decision-making.
Q: Many individuals, including Penn alumni and friends, are considering ESG issues in their own investing. What is the most important thing for them to know?
At the highest level, ESG investing is a simple proposition. Any investment analysis should incorporate the material ESG factors into its analysis. The challenge, however, is in implementation. How does one do this in a specific case where the data is spotty or inconsistent, the relationships are unclear, and many are offering self-serving arguments for why their approach will generate better returns or lower risks? That is the challenge on which we are delivering research, educating students and executives, and seeking to influence practice and policy.
In this 7-minute video, Witold Henisz offers insights about investing in ESG, greenwashing, and how ESG initiatives can boost productivity.
