Alex Edmans testifies before Parliament of Canada | London Business School

London Business School (LBS) Professor of Finance Alex Edmans has given expert testimony before the Parliament of Canada’s House of Commons Standing Committee on Environment and Sustainable Development.

Professor Edmans, a global expert in sustainable finance, was speaking as part of an inquiry into “environment and climate impacts related to the Canadian financial system.”

In giving evidence, he acknowledged the serious risk of climate change, but highlighted the complexity of serving the sometimes competing interests of society and shareholders.

“A lot of my own research is on the overlap between what’s good for society and what’s good for shareholders, but they don’t always overlap, and it’s important to be mindful of these trade-offs,” he warned.

He also stressed the trade-off between different societal goals. For example, a power cut in Sierra Leone led to a baby dying in a hospital, highlighting the importance of energy security.

Professor Edmans also advised policymakers to ignore the ESG label, arguing that its use as an umbrella term failed to acknowledge that environmental, social and governance goals might not always align.

“Here’s the problem with ESG: It bundles everything under the ESG umbrella in the same way. However, some of these things overlap and some of them don’t, so it’s important to consider them separately,” he said.

Under questioning from MPs, Professor Edmans also addressed the findings of his recent investigation into sustainable investing with Tom Gosling (LBS) and Dirk Jenter (London School of Economics), which showed asset managers did not consider non-material factors.

He said government regulation would not necessarily encourage financial decisions aligned with climate, and that blanket decisions on what constituted “good” and “bad” were difficult for regulators to make. Instead, the power to influence should lie with clients.

“Asset managers are not going to be taking into account issues they don’t believe are material,” he said.

“However, what can lead them to doing this are constraints from their own clients. If there’s a fund mandate saying that you have to invest in sector X and you’re not allowed to invest in sector Y, that is something that absolutely can move them to investing in a different way, but that will come from the clients of those funds, not necessarily from regulation.”

Professor Edmans also spoke about the likely impacts of divestment, climate disclosure and government regulation of ESG scores.

View Professor Edmans’ testimony.