 ESG and sustainability are hot topics in business and, increasingly, civil society. Hardly a day goes by without one or both being mentioned in newsfeeds and across social and mainstream media. Since the term ESG was first coined in 2005, and more so through the coronavirus pandemic, researchers and commentators have promoted ESG as the answer to what have been held up as great issues of our time—issues such as changing climatic conditions; the impacts of fossil fuels; population growth; modern slavery; the excesses of capitalism; geopolitics; and, more besides. Shareholders are starting to acknowledge companies should be doing a better job, in terms of appropriately stewarding the resources used in the operation of their business and fulfilling their duties. Institutional investors in particular are applying direct pressure to refocus board attention and business priorities to tackle the great issues—their underlying belief is that ESG-based approaches provide more sustainable long-term value creation. What is one to make of these developments? Evidence to support claims that ESG-based investments outperform other investments is yet to emerge. The question of why this might be the case remains open. It could be that investments have been poorly placed; expectations are unreasonable; measurement systems are inappropriate; and, probably, more besides. Of these possibilities, the spectre of inappropriate measurement systems looms large. A couple of years ago, Ethical Boardroom, a magazine read by tens of thousands of board directors, advisors and executives, commissioned an article on the matter. I concluded that a measurement and reporting framework founded on the three main capitals used in business would probably provide a more informative and complete measure of sustainable business performance than ESG. A copy of that article follows. If you have any comments and suggestions on this, including criticisms, please do let me know—either in the comment box below or, if you prefer, a private message. 
3 Comments
Coral Ingley
3/5/2022 12:08:32
In our recently published book “The Illusion of Transparency in Corporate Governance: Does Transparency Help or Hinder True Ethical Conduct?”, my co-authors and I highlight some of the issues relating to initiatives such as ESG, intended to address the issues pre-occupying civil society to which boards should be paying attention, and can play a greater leadership role. While the book specifically critiques transparency I see concerns about ESG reflecting similar criticisms. This is especially applicable when such tools are seen as a panacea but bring unintended consequences that lead to public scepticism and distrust of corporations.
Peter Crow
7/5/2022 18:54:30
ThNk you, Coral, for your most helpful comments. I look forward to reading your recently published book. Leave a Reply. |
SearchMusingsThoughts on corporate governance, strategy and boardcraft; our place in the world; and other topics that catch my attention. 
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