TL;DR - ESG mutual fund managers are basically taking advantage of their investors without actually delivering on ESG goals.
Reading the full article, it sounds like the problem is not ESG investing. It is the mutual fund managers selecting companies to purchase based on what they say about ESG rather than taking the time to look at what they actually do.
For example:
Researchers at Columbia University and London School of Economics compared the ESG record of U.S. companies in 147 ESG fund portfolios and that of U.S. companies in 2,428 non-ESG portfolios. They found that the companies in the ESG portfolios had worse compliance record for both labor and environmental rules.
However, the article also dabbled in a bit of ivory tower thinking.
in competitive labor markets and product markets, corporate managers trying to maximize long-term shareholder value should of their own accord pay attention to employee, customer, community, and environmental interests. On this basis, setting ESG targets may actually distort decision making.
While the theory says that company management should seek to maximize long-term shareholder value, in practice such management is rare. There are an awful lot of companies managed by people looking to maximize their short-term personal finances rather than that of shareholders. Such problems are one of the biggest issues in corporate governance today - how to align top management incentives with those of shareholders and investors.
It would appear that top management of mutual funds is not immune from this corporate governance problem.
–Peter