Reumo
Discussions about ESG (Environmental, Social, and Governance) investments have become significant within the financial field, especially concerning two aspects: the divergence in standards of ESG labels and ratings and the expectations of returns related to these stocks (Cornell, 2020). There is neither consensus nor uniformity among rating agencies on how to measure stocks in terms of ESG reputation, despite using general sustainability and governance premises. Views and metrics vary, leading to a lack of a single or unanimous criterion for classifying companies according to ESG standards (Berg et al., 2022; Li & Polychronopoulos, 2020; Chatterji et al., 2016; Dorfleitner et al., 2015; Semenova & Hassel, 2015). Part of the ambiguity arises because a large number of organizations provide ESG ratings, and there is also a dispute over what should be considered within the ESG agenda in labels and ratings. The second point's debate becomes even more critical as the monetary return expectations of ESG stocks do not materialize in the long run. Some companies consider non-monetary criteria when investing in ESG stocks, making investment in stocks with ESG characteristics not necessarily tied to performance but rather to intangible aspects initially, such as reputation (Fama & French, 2007). There are behavioral biases in investors' preferences related to ESG characteristics, which affect expected returns under various circumstances depending on, among other factors, the size of the company. Information asymmetry between market agents and the lack of transparency and standardization in ESG reports contribute to volatility in these stocks' performance, and this has become characteristic of these types of investment funds. When segmenting this discussion in terms of the size of organizations, the debate becomes even more critical as smaller and medium-sized companies do not have sufficient resources to assume the risks of investing in certain types of ESG-characteristic stocks (Cornell, 2020). This discussion has so far developed only from the point of view of the utility of risk and return. This essay aims, from an ontological perspective, to understand that preferences, returns, and risks in stocks with ESG characteristics conflict in perspective in light of the objectives and even the rationality that surrounds these discussions. The essay discusses from the perspective of critical pragmatism, explanations for the dissonances in the field of ESG investment, relating the visions and rationalities that involve this discussion, and proposes, emergently, an ethos to think about preferences, returns, and risks in stocks with ESG characteristics. The theoretical contributions used start the debate on risk and returns in ESG stocks (Giese, et al., 2019; Kumar et al., 2016), discussions about the ESG agenda in finance (Friede et al., 2015), and theories related to critical pragmatism in organizations and notably in the field of finance (Serva, 2023). Just as the geometer tries to measure the circle, financial analysts create models to predict the behavior of assets and markets. However, these models are never perfect and always carry uncertainties and assumptions that may not hold true in practice. The relentless pursuit to understand and mitigate financial risks can be compared to the geometer's search for the principle of the circle. In the financial market, risk can never be completely eliminated, and risk managers must continually adapt their strategies to new information and market conditions. Investors are constantly looking for new strategies and opportunities to maximize returns and minimize risks. Similar to Dante's geometer, they may feel frustrated when their expectations are not met or when results are not as predictable as they had hoped. Financial institutions and regulators constantly try to measure and adjust rules to ensure market stability and transparency. However, like the geometer, they often encounter new challenges and complexities that hinder the creation of a perfect system. Dante's quote underscores the complex and often unattainable nature of the search for complete understanding and control, both in geometry and in finance. It reminds professionals in the field that uncertainty is an inherent part of the domain and that the pursuit of better methods and greater understanding is a continuous and essential effort. This essay aims to shed light, from the perspective of critical pragmatism, on concepts that, when transposed to contexts carrying ethical values, must be reconsidered. The positions presented here assist in the quest for alignment of ESG rating agencies and regulation of the field to achieve an effective and substantive sustainability agenda in the finance sector, from an ethos of knowledge, even in terms of risk and return measures. This essay, building on previous studies, reflects on the need to understand that investors must commit to sustainability and accept that losses may occur. Thus, it is necessary to say goodbye to solely maximizing behavior when thinking about ESG stocks and to accept losses for the sake of future generations.