> Despite tens of trillions of ESG investments, investors haven’t done very well nor generated much good

You've not provided much evidence for the generated good part. The profit is the easier part to measure, but I'd like to know how they're doing on the ESG part (which is of course why they have lower yields and still chosen to begin with!).

I think (and credit the insight to a friend) that we should really be investing not only in terms of profitability, but in how ESG-effective (or in more general terms, constructive, good for society, effectively altruistic, etc.) the organization is. By now it's been said many times, and it's becoming quite clear we're optimizing the wrong thing (just returns). It's not as bad as it seems, simply because I think a large portion of individuals are highly charitable, and also make personal choices that take something like ESG into account, including shunning products and companies, as well as the introduction of government regulation.

But there are significant problems because profit-driven investing and then buying consciously doesn't work say for mitigating climate change. The oil and gas industries and several other industries can operate largely independently of consumer goodwill, and sometimes consumers really lack the capability or means to have enough information to enact any ideal in this part. Moreover, some large offenders (industries and individuals that act very anti-socially) can be quite bad, outside of individual control. Regulation can help, but then it tends to be slower and requires thorough consensus.

ESG investing helps in that (a) You should be directly optimizing the right thing (prosocial and environmental aspects of the company); (b) An ESG fund can do the research for you much more thoroughly; (c) Activist investors can change entire companies direction (with voting shares).

It should be said though that company shared ownership, i.e. stocks, are just that. Even if the stock of say an oil and gas company that disregards climate change completely is sold en masse from activism, that can reflect not that much on the operations of the company and the stock price can bounce back on a restricted pool of indifferent investors. But I believe there are some liquidity and credit benefits to a strong stock market valuation. (Edit: although of course by controlling voting shares an activist group can control the company, which has shown potential recently I believe)

This is why I think credit to ESG ventures should be the investment priority more than ESG companies themselves. And it clearly doesn't excuse individuals of acting responsibly in other ways and also promoting legislation to help (It does help push for change when you and many others are invested in a good outcome in a very literal sense).

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The limit of this idea is something I call 'Elementalism', a form of organization where we would try "optimizing for the right things" even more directly: What if we had some distributed entities that could evaluate organizations for their impact (on many fronts, say scientific development, technological development, artistic development, being healthy/good for mental or physical health of people, etc.) as close to quantitatively as it can, and then that could translate into some sort of credit or monetary reward directly. So if your company makes something that is proven to pollute the environment and generate so much in health damage to the population, maybe you could be "fined" directly by those (distributed) entities; and on the flip-side if your product has some extraordinary health benefit to users, maybe it could be rewarded more directly on impact; this could respond much faster than trying to change rules and regulations. I'm not sure if those entities should be a part of government or not... but in any case they'd need to cooperate closely among themselves and the government to collect and distribute this income/credit.