There are two possible explanations for the financial market's poor performance on ESG.
One explanation is that they're just not being given accurate information by the companies. Certainly, there are lots of incentives for companies to put the best face on their ESG performance. I tend to think fraud is not common, but there's a lot of spin in ESG reporting.
The other reason the financial market has done a poor job is that the incentives of fund managers are to generate strong relative returns in their funds. Doing that is where they invest most of their time and energy. It's not in reading lengthy and complex ESG disclosure, much of which is inadequate because, in order to evaluate a company's ESG performance, you have to understand the alternatives strategically, in their markets, to decide whether or not they're taking the right path for the company. We don't see that level of engagement in any topic in corporate governance, including straightforward topics like executive compensation or maximizing financial returns. Corporate governance generally gets ignored by investors, aside from rhetoric.