Back to all weekly shorts
Weekly Short
10 June, 2022
ESG investing, the Financial Times wrote this week, has reached a reckoning.
Factoring environmental, social and governance factors into investment decisions seems like a no-brainer. But in practice, the approach has its critics. Some warn that ESG has become a catch-all term, whose loosely defined criteria provide a screen for corporate greenwashing. And, as we wrote recently, ESG investment criteria can miss the most crucial elements of a company’s impact – including its business purpose.
Which raises a crucial point. Being a sustainable, purpose-driven business should mean much more than having a high ESG performance rating. ESG criteria provide a marking system to test how well a company is delivering against the expectations of one stakeholder group: investors. But even if ESG investment ended tomorrow, the imperative to be a progressive business would not.
Employees want to work for sustainable companies – in fact, three quarters want their employer to be more transparent about its environmental impact. Customers want to buy from ethical businesses: 90% of Gen X consumers are willing to pay more for sustainable products. And other stakeholders – from governments to NGOs – will continue pushing businesses to cut their carbon footprint, reduce their packaging and report their impact.
If a maths GCSE paper was revealed to be a poor test of mathematical ability, we wouldn’t stop teaching children maths. Even if ESG criteria aren’t measuring the right things, the principle behind them – that doing good is good for business – endures. And stakeholder capitalism means serving not just investors, but employees, consumers, communities and society. That’s the route to being truly progressive – and profitable too.
By Sarah Howden