PG&E Exposes the Pitfalls of Virtuous Investing

If you’re baffled by environmental, social and governance investing, PG&E Corp.’s recent troubles are likely to raise more questions than answers.

The California power company has been devastated by wildfires that ripped through the state in 2017 and 2018. PG&E’s liabilities are estimated at $30 billion and a bankruptcy filing is imminent. Its stock has tumbled 89 percent from its high on Sept. 11, 2017, through Wednesday.  

Not to be confused with socially responsible investing, which avoids businesses that some investors find ethically or morally questionable, such as tobacco, gambling or weapons, ESG attempts to identify companies that are exposed to higher-than-average environmental, social or governance risks. The idea isn’t necessarily to beat the market but to engineer a smoother ride by limiting investment in high-risk companies. 

It’s a worthwhile endeavor, but it’s easier said than done. The strategy didn’t flash many warnings around PG&E, and it’s not the first time a company has turned out to have crucial vulnerabilities that failed to show up on ESG’s radar.

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