ESG Vigilantes

The market tends to avoid or ignore risk until faced with abrupt crisis: a lost lawsuit, legal challenge, government action, or act of violence.  Corporations have generally been unwilling to alter practices without government intervention.  One example that comes to mind is the necessity of government involvement to ban investments in Cuba, North Korea, and Iran.The sudden incorporation of ESG risks into stock prices implies a long-term bimodal model of returns.  In the short-term, one might expect increased volatility prior to crisis, as investors assess the perceived risk of “ESG-unfriendly” companies through risk-on and risk-off trades.  However, there is no fundamental shift in value until actual crisis.Is it plausible to conclude that, as ESG factors gain in relevance, the market rather than the government will be the driving force to instigate change?  A small body of consumers and investors penalize companies that fail to adhere to high environmental, social, and governance standards.  I remain skeptical as to whether this ensemble will ever grow large enough to be truly impactful, but the idea is not completely unreasonable.Bond vigilantes have become a credible force in the bond market by forcing rates higher in inflationary environments, prior to Federal Reserve action.  In some circumstances, the bond vigilantes have been so successful that government action has not been required.Is it possible ESG vigilantes will emerge, forcing company action by affecting stock prices prior to government intervention, such that intervention no longer becomes necessary?