(Expansión) – ESG is the acronym in English for one of the fashionable mechanisms to promote sustainable investments. In particular, it seeks to define criteria so that companies are more responsible in the environmental, social and their own governance. Although the goal is desirable, they have long been under scrutiny in several countries.
The Economist, the London-based global magazine, summed up the situation in a stark way with “ESG: three letters that won’t save the planet”. In this edition, he dedicated a special report to analyzing the main criticisms and reactions around the scheme and exploring ways in which ESG should be reformed to have a greater impact. The topic is financial, but two ideas from the analysis caught my eye and I think they offer key lessons that apply to any agenda.
The first is related to the importance of having well-defined objectives . In theory, bringing together the ESG pillars makes sense for companies to reduce their environmental footprint, generate a social impact starting with their workers, and conduct themselves with integrity. However, being three such different objectives, without a clear path of which prevails over another, they have led to controversy.
For example, S&P Dow Jones removed Tesla from the ESG version of the S&P 500 index due to problems associated with the working conditions it offers and the company’s governance, despite the fact that it is dedicated to manufacturing electric cars that contribute to reducing greenhouse gas emissions. carbon. Which dimension should weigh more? What is the ultimate goal of the scheme?
This is further complicated if it is understood that ESG is actually considered a long-term risk management tool to identify how exposed a company is to environmental, social and integrity pressures. Their primary goal is not to improve the environment or make a difference in the world.
The second lesson is that lack of evidence and measurement can lead to detrimental consequences . ESG assumes that by investing in companies that are improving in one of its three pillars, higher returns are obtained while generating a positive impact. However, this is difficult to verify since there are around 160 ESG rating companies around the world, which measure different indicators that are not comparable or transparent.
Some critics believe this has led to advertising practices that have, at best, had no impact on the environment or people. Other analysts are more drastic and believe that this scheme has limited government action to have the stricter regulation that is needed to combat climate change.
I don’t know what direction ESG will take, although The Economist’s proposal is inclined to adhere to the environmental component in a simplified way: favoring the fight against climate change and measuring the reduction of carbon emissions.
As this scheme evolves, it leaves us with a key lesson: the lack of well-defined objectives and metrics to monitor compliance can lead to counterproductive results. Although it seems obvious, public officials, analysts, academics should keep it very much in mind so that our work has the desired impact.
Editor’s note: Fátima Masse is Director of the IMCO’s Inclusive Society. Follow her on Twitter as . The views expressed in this column are solely those of the author.
