Home

Translate

en English af Afrikaans sq Albanian ar Arabic hy Armenian az Azerbaijani eu Basque be Belarusian bg Bulgarian ca Catalan zh-CN Chinese (Simplified) zh-TW Chinese (Traditional) hr Croatian cs Czech da Danish nl Dutch et Estonian tl Filipino fi Finnish fr French gl Galician ka Georgian de German el Greek ht Haitian Creole iw Hebrew hi Hindi hu Hungarian is Icelandic id Indonesian ga Irish it Italian ja Japanese ko Korean lv Latvian lt Lithuanian mk Macedonian ms Malay mt Maltese no Norwegian fa Persian pl Polish pt Portuguese ro Romanian ru Russian sr Serbian sk Slovak sl Slovenian es Spanish sw Swahili sv Swedish th Thai tr Turkish uk Ukrainian ur Urdu vi Vietnamese cy Welsh yi Yiddish
Open Translation

LONDON: Andrew Winston is coauthor with Paul Polman of ‘Net Positive: How Courageous Companies Thrive by Giving More Than They Take’. Just as fossil fuel companies should not lead the planning of our energy future, he suggests it is equally unwise to let finance lead the journey to a humane, more just, less greed-filled form of capitalism:


Over the 20 years I’ve worked at the intersection of business and society, I’ve seen many terms applied to this part of the business agenda: compliance, eco-efficiency, corporate social responsibility, socially responsible investing, green, clean, sustainability, regenerative, net zero, net positive, and many more.

Some variation in how we talk about all of this is helpful, but we also need some common language that’s both relatively easy to comprehend and interesting. In tech, for example, “blockchain” sounds much cooler than “a shared, immutable ledger for recording transactions.” In the realm of the overlap of business and society, sustainability has had the most staying power, often for lack of something more exciting.

But in recent years, ESG — which stands for environmental, social, and governance — has become the dominant term. Within the narrow world of the sustainability expert community, the battle royale is raging about sustainability versus ESG and the implications of shifting semantics. I don’t want to litigate what these words mean, but I do want to look at why ESG has taken over so fast and discuss some risks I see from the term’s adoption.

I think the core reason for the rise in the use of ESG is the investment community’s arrival on the sustainability scene, at long last. Investment in so-called ESG funds has skyrocketed, with well over US$1 trillion flooding into ESG funds in the past two years. ESG has been the language the money people use to distinguish investment funds that, in theory, screen companies for some level of sustainability performance or advantage.

That said, debate over whether funds that claim to be ESG focused are actually picking companies that do better by the world has led to a stupendous and justified backlash. Some people are even arguing that the traditionally excluded defense sector should now be included because weapons are being used to defend democracy in Ukraine.

That assertion is more than a little muddy, so clearly ESG has to evolve and get refined. These are important debates, and regulators are taking notice: The U.S. Securities and Exchange Commission issued a warning about these funds, noting the ‘rapid growth in demand, increasing number of ESG products and services, and lack of standardized and precise ESG definitions.’

Why are investors at the table now? I see three big reasons.

• First, the nature of the systemic risk that climate change poses is becoming clearer. Record-breaking droughts, floods, fires, and storms destroying communities and disrupting supply chains are hard to ignore. They are creating real costs to business, and regulators are moving quickly to mandate that companies understand and report on the material impacts of climate-related risks on their operations and strategies.

• Second, investors are feeling pressure from their stakeholders. In 2019, I spoke at an event for wealthy customers of a multinational bank. The bank’s global head of private wealth talked about a customer survey the bank had just conducted. They said that the No. 1 issue its private wealth clients cared about was no longer something like estate planning or portfolio mix; rather, it was impact investing and ESG. I’ve heard about this pressure from multiple sources, and I believe it’s coming largely from the younger members of wealthy families essentially saying to their grandparents, ‘OK, we have a lot of money, but what’s the point?’

• Finally, the biggest reason is economic opportunity. The shift to the clean economy is accelerating, and multi-trillion-dollar markets are in play — creating radical shifts in energy, transportation, food and agriculture, materials, consumer products, finance, and more. As Larry Fink, CEO of BlackRock, the world’s largest asset manager, wrote last year, ‘There is no company whose business model won’t be profoundly affected by the transition to a net zero economy. … Companies that are not quickly preparing themselves will see their businesses and valuations suffer.’

All are affected, but some more than others. Investing in companies that provide or leverage clean technologies makes sense, given that they increasingly outcompete “dirty tech” companies. Preferring companies that take advantage of rapidly expanding markets and respond to customer demands is no do-gooder philanthropy — it’s good business. No investor would question increasing exposure to, say, AI technologies. Big trends draw big money, and the move to a carbon-free economy is as big a trend as they come.

With all those forces coming to bear, investors are here to stay. Even with the incredible chaos around defining ESG, it’s better to have finance people at the table than not. We can’t truly get momentum in corporate sustainability with investors on the sidelines; CEOs don’t feel much pressure unless investors want something. But I have a couple of concerns about the dominance of ESG as the rallying cry.

On the level of language, which can guide behavior and outcomes, the term ESG is fairly meaningless. It’s an acronym for categories of things companies should work on. That’s likely a part of why investors like it — they can look like they’re talking about real progress on environmental and social issues without saying much at all. Efforts can easily drop into incremental approaches that may be worse than nothing. As Paul Polman, my coauthor on the book Net Positive, likes to say, ‘So if I killed 10 people before but only five now, am I a better murderer?’

When a company announces, in essence, ‘We’re doing ESG,’ what does that tell you? It’s like saying ‘We do HR.’ OK, so you have a human resources department and a senior vice president running it, but what are you doing with your people? Investing in them? Helping them find their purpose? Or maybe laying off all permanent staff — over Zoom! — to replace them with temps?

We clearly need to imbue ESG with meaning. We need sustainable or regenerative or net-positive ESG. Of course, these terms also need details behind them, but at least they tell you something about the direction in which you’re headed.

But I have a larger philosophical concern with investor-led language. Seeing all things through the lens of markets and the quest for shareholder maximization is largely how we got into this mess in the first place. We’ve put profits above literally all else, and it’s leading to ecological collapse and vast inequality. Framing a company’s commitments around battling climate disaster in investor terms turns it into an exercise of ‘Does this create shareholder value?’ — which is not beside the point but skews the world dramatically. Sure, shareholders should do well, but only after a company has served a purpose for stakeholders and helped protect the world and resources we all rely on to survive and thrive.

Investors aren’t well positioned for this approach. Just as fossil fuel companies should not lead the planning of our energy future, it seems unwise to let finance lead the journey to a humane, more just, less greed-filled form of capitalism.

This isn’t all just semantics. If we talk mostly in broad terms about what we’re doing and not in concrete, science-based ways about how fast we need to cut carbon or improve human rights, where are we, exactly?

That said, even though I’m a writer, and words and rhetoric matter to me, I’ve always cared far more about outcomes. If your company’s carbon emissions are declining quickly and it’s paying living wages, working in its sector to find larger solutions, lobbying for the kinds of policies that help create systemic change, working to defend democracy and science, and so on … then you can call your efforts any number of things, so long as it works for you. Walmart, for example, has embraced becoming a 'regenerative' company — and if that motivates the organization, fantastic.

Either way, the moral and business imperative for leaders today is to focus on what really matters: action at the speed and scale we need to build a net-positive world.



(This comment appeared in the MITSloan Management Review on May 05.)
 
Story Type: News

Vote for my Story

Our Rating: 9% - 1 votes

1000 Characters left


Latest News

May 19, 2022
People Editor

It won't be business as usual when the ports are underwater

CHARLOTTE, NC: A recent IEA-related article in the Guardian newspaper included a quote from Greg Muttitt, an energy expert at the International Institute for Sustainable Development: “Governments and companies often suffer from a form of cognitive dissonance:…
May 19, 2022
Emissions Editor

Cruise ships emit more CO2 than airlines?

WASHINGTON, DC: Bryan Comer leads the International Council on Clean Transportation (ICCT) marine programme - dedicated to providing policymakers with the data and analysis they need to avoid, reduce, and eliminate pollution from the global shipping sector.…
May 18, 2022
Energy Editor

Marine biofuel pioneer expands in Asia

SINGAPORE: GoodFuels, a biofuels pioneer for the transport industry, has signed a partnership agreement with ITOCHU Corporation, one of Japan’s largest general trading companies, to scale sustainable marine biofuel in Singapore, Japan, and Asia-Pacific. The…
May 18, 2022
Emissions Editor

Microsoft cash produces more emissions than the manufacturing, transport and use of its products

WASHINGTON, DC: A new report has revealed how the banking sector uses client cash to finance fossil fuels while undermining the sustainability efforts of climate-conscious companies including Google, Meta and PayPal. ‘The Carbon Bankroll: The Climate Impact…
May 18, 2022
Transportation Editor

CMA CGM integrates Air France-KLM

PARIS/MARSEILLE: Air France-KLM and CMA CGM have signed a 10-year exclusive partnership that could result in a 9.0 percent stake in the airline group and a Board seat for the French logistics company’s president and CEO Rodolphe Saadé. The deal will result…
May 16, 2022
Transportation Editor

United Heavy Lift expands greener fleet

HAMBURG: Project and outsize cargo carrier United Heavy Lift has ordered two more F900 Eco-Lifter vessels to add to a fleet of 17 delivered between 2019 and this year. The company is phasing out all its UHL 800 P-type vessels in a bid to operate a modern and…
May 13, 2022
Emissions Editor

Climate crisis worsens despite corporate promises

GENEVA/LONDON: A report from the UN World Meteorological Organization (WMO) says it’s likely the annual average global temperature will reach 1.5 °C above pre-industrial levels at least once in the next five years. The odds of exceeding the Paris Agreement…
May 13, 2022
Transportation Editor

Royal Mail to expand UK drone network

LONDON: Britain’s Royal Mail is to create 50 new postal drone routes over the next three years as part of a partnership with UK logistics drone operator Windracers Group. Subject to regulatory approval, the company will operate Uncrewed Aerial Vehicles (UAVs)…
May 12, 2022
Technology Editor

Turning trash in a flash to capture carbon

HOUSTON, TX: A new process developed by the Rice University lab of chemist James Tour can turn bulk quantities of just about any carbon source – i.e. a banana peel - into valuable graphene flakes at a fraction of the current price of up to US$200,000 a ton.…
May 11, 2022
Transportation Editor

Deutsche Post DHL ‘GoGreen’ - but will Germany?

BONN: Deutsche Post DHL is to invest €600 million in sustainability-related logistics infrastructure including 280 carbon-free delivery depots – 100 of which are scheduled for completion at the end of this year. In addition to a current fleet of 20,000…
May 05, 2022
Food Editor

Putin’s War reveals fragile food supply chain

WARSAW: An international donor conference has raised US$6.5 billion for humanitarian aid to 7.7 million Ukrainian citizens internally displaced and a further 5.5 million now refugees in other countries. After 10 weeks of Russia’s invasion, a new report from…
May 05, 2022
Technology Editor

Schenker plans autonomous Norwegian feeder vessel link

FRANKFURT/OSLO: DB Schenker has signed a pre-study agreement with furniture manufacturer customer Ekornes and vessel designer Naval Dynamics with the goal of operating an autonomous, electric-powered, short-sea container feeder vessel between the Norwegian…

We are using cookies

By continuing you are agreeing to our use of cookies

I understand