ESG Is Dead, Long Live ESG!

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    It’s been a rough year for good old ESG so far. Amidst a storm of criticism and greenwashing allegations, even the most loyal fans among us are starting to waver, questioning the concept’s raison d’être and wondering whether it amounts to more than a mere marketing gimmick. From the Economist to the Wall Street Journal and from Bloomberg to the Financial Times, no major publication has been able to resist the fad, each running a dedicated ESG feature this summer. Spoiler alert: they all proclaim ESG’s imminent death. Politicians, too, are riding the hate wave. Left or right-wing, everyone seems hell-bent on hijacking and distorting the concept for their own purposes.

    I struggle to comprehend why “people are so invested now in hating ESG,” in the words of Professor Robert Eccles, who himself seems ready to disavow the besmudged acronym. We all knew, of course, that ESG was not synonymous with sustainability. And we hardly needed the Economist to enlighten us that these “three letters won’t save the planet,” or for the FT to admonish us to “not mix up ethical with ESG because they are two separate things.”

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    No, folks, ESG is just a way of organising the many disparate yet equally important concerns fighting for a spot under the broad sustainability umbrella. Surely we had to bring a little structure to the rather vague exercise of conducting business and investing today “without compromising the ability of future generations to meet their own needs,” as per Brundtland’s general prescription from 1987?

    ESG is as good a framework as any, I would imagine. The simple classification system, envisioned by a young PhD student in economics at the University of Sydney[1], suggests three rather logical buckets into which to store the varying sustainability issues. It took, of course, the blessing of a celebrity like Kofi Annan, then secretary of the United Nations, to officially sanction the new holy trinity in 2004. And, when subsequently the UN Global Compact Initiative published its influential report Who Cares Wins, mentioning ESG multiple times, the fate of the acronym was sealed.

    Going back to the origins of the ESG framework, deemed so imperfect these days, I end up rereading that pioneering UN report that first introduced it to the world. “We have refrained from using terms such as sustainability, corporate citizenship, etc., in order to avoid misunderstandings deriving from different interpretations of these terms. We have preferred to spell out the environmental, social and governance issues which are the topic of this report,” write the authors. “The report aims at increasing the awareness of all involved financial market actors, at triggering a broader discussion, and supporting creativity and thoughtfulness in approach, rather than being prescriptive,” they add, for good measure.

    Let’s stop blaming poor ESG for the dysfunctional ways of sustainable finance, please. It is how we use, or abuse, a framework that matters, not what label we smack on it. Sure, we could try and exchange those three buckets and letters for a different set, but I doubt it would significantly improve our grasp of the complex matter at hand. Academics, practitioners, and regulators have been toiling for decades now to de-fuzzy the whole sustainability jumble by formulating definitions and standards, by designing measurements and methodologies. It would be such a waste if we were to casually discard their efforts only because of their association with an unpopular acronym.

    I say, let’s keep the name and work on improving our attitude instead.

    [1] James Gifford, who is credited with coining the acronym ESG, joined the United Nations’ Environment Program Finance Initiative at its Geneva headquarters in 2003 as an intern and was eventually hired to help outline the new Environment, Social, and Governance structure.

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