Beyond the ESG Label: Risk, Governance, and the Evolution of Sustainable Investing (Chris Merker)

Earlier this month, I joined Lee Rayburn on Wisconsin Public Radio for an hour-long conversation about ethical and sustainable investing.

We began with familiar questions: What distinguishes ESG integration, values-based investing, and impact investing? Can investors align their portfolios with their values without compromising their financial objectives?

The discussion soon moved into artificial intelligence, retirement security, trust in markets, corporate governance, shareholder stewardship, and long-term investment discipline.

That breadth was not a detour. It was the point.

Sustainability is not a single investment strategy. It is a way of asking whether businesses, institutions, markets, and portfolios can adapt to changing conditions without losing financial discipline or public trust.

Drawing on our work with investors and institutions at Baird, together with my research and teaching at Marquette, I approached the conversation from both practice and scholarship.

Beyond the label

Faith-based investing predates ESG by generations. Religious institutions have long used investment screens and stewardship practices to align their portfolios with mission. Divestment campaigns later became tools for addressing issues such as apartheid. Beginning in the 1990s, corporate governance became increasingly central to institutional investment practice.

ESG eventually gathered many of these traditions under a single—and increasingly broad—umbrella.

That helped expand the field, but it also created confusion. At times, the label moved ahead of the discipline. Products proliferated, objectives blurred, and political expectations became mixed with investment judgments.

The backlash was therefore not entirely surprising. But it does not follow that the underlying work has disappeared.

My basic rule remains:

Investors should neither impose an unrelated political agenda through a portfolio nor ignore financially relevant risks because those risks have become politically controversial.

That is the durable center.

The ESG label has receded, but the underlying disciplines of risk management, governance, stewardship, and corporate sustainability remain widely embedded in investment and business practice.

Sustainability is a governance problem

Governance is the machinery through which institutions confront tradeoffs.

How should a company balance reliable and affordable energy with emissions goals?

How should a pension fund consider long-term environmental risks while meeting its fiduciary obligations?

How should an individual investor balance personal values with diversification, costs, liquidity, and expected return?

How should companies building artificial-intelligence capacity account for increasing demands on electricity, water, land, materials, and infrastructure?

An ESG score cannot answer those questions.

They require judgment, capital allocation, accountability, and a legitimate decision-making process.

That is why our work at Marquette places governance alongside sustainability. Sustainability describes the challenge of enduring and adapting. Governance determines whether institutions can make the decisions required to do so.

AI makes the tradeoffs visible

The WPR conversation turned unexpectedly—and productively—to artificial intelligence.

AI is usually framed as a technology story. It is also an infrastructure and sustainability story.

The buildout requires data centers, power generation, transmission capacity, semiconductors, cooling systems, construction materials, land, and capital. It raises legitimate questions about energy and water use. It also creates opportunities for investment, productivity growth, and infrastructure renewal.

A serious sustainability analysis should avoid two opposite mistakes.

It should not treat economic growth as inherently irresponsible simply because growth consumes resources. Nor should it assume that innovation will automatically solve every resource constraint.

The better question is whether those constraints are being recognized, priced, financed, and managed intelligently.

Again, that is a governance question.

Ethical investing begins with purpose

For individual investors, the starting point is relatively simple:

What are you trying to accomplish?

ESG integration generally means incorporating financially material environmental, social, and governance information into investment analysis.

Values-based and faith-based investing seek alignment with stated moral or institutional principles.

Impact investing intentionally pursues measurable social or environmental outcomes alongside financial return.

These approaches can overlap, but they are not interchangeable.

Investors now have a wide range of ways to express these objectives. But labels are not substitutes for due diligence. Holdings, strategy, fees, diversification, risk, and stewardship still matter.

The familiar disciplines remain decisive: define the objective, build an appropriate plan, and avoid making short-term decisions in response to headlines or market emotion.

The honest answer is tradeoffs

Lee closed the hour by asking whether investors must sacrifice financial return to align their portfolios with their values.

The honest answer is that tradeoffs are unavoidable—but they are not always predictable or one-directional.

Every investment has costs, exposures, and consequences. No portfolio is entirely impact-free, and no label repeals the basic disciplines of investing.

The goal is not moral perfection. It is deliberate alignment.

For individuals, that means balancing values, financial objectives, and risk.

For institutional investors, it also means fiduciary duty, authorization, governance, and stewardship.

For companies, it means allocating capital today while preserving the ability to compete and prosper tomorrow.

Sustainability is not about escaping tradeoffs. It is about governing them well.

Political cycles will change. Labels will change. Investment products will come and go.

The underlying questions of risk, resilience, stewardship, and trust will remain.

That is a healthier—and more durable—foundation for sustainable investing.

My thanks to Lee Rayburn and producer Joel Patenaude for a thoughtful and wide-ranging conversation on Wisconsin Public Radio.

Link to episode: https://www.wpr.org/shows/the-lee-rayburn-show/ethical-investing-and-disaster-preparedness