Sister Patricia Daly was the maverick who pioneered socially responsible investment. A Dominican nun, she was the dominant force behind convincing corporations to see environmental issues as business risks they could not afford to ignore. Sister Daly died in December 2022, as the environment, social and governance she shepherded is under scrutiny and criticism.
Markets and market makers are smart. Mitigating risk and seizing opportunity is what they do. Seeing environmental conditions as opportunities, there is now a rich market in ESG performance-linked financial funds and tools. Mitigating risk and seeking growth, corporations invest in the environment, communities and social issues to protect supply chains and secure needed resources, protect reputations, and in some instances, strengthen their employee and customer bases. Corporate philanthropy, brand-connected social issue marketing and employee initiatives are all designed to showcase a corporation’s commitment to protecting and uplifting the conditions that will be instrumental in their future business success.
There is however, growing criticism of the ESG universe. Suspect motivations, measurements and marketing have mis-shaped ESG into disingenuous green-washing.
Given the daily stories of corporate malfeasance and outright deception, it has become increasingly difficult to believe what corporations tell us. Even if we are inclined to believe them, how corporations typically tell us about their commitments is through marketing tools and tropes. Today’s savvy consumers smell marketing as transactional hype, not genuine or honest communications.
How we define and measure ESG is equally problematic. Notwithstanding the plethora of metrics and measures, whether they are defined by MSCI or Morningstar’s Sustainalytics, or ranked by numerous assessors (Investors Business Daily is only one example amongst many), there is no consistency in what items to measure and no standardization in how measurements are made.
Many of those who evaluate ESG investment funds are deeply skeptical of their real value. According to Jason Zweig of the Wall Street Journal (Feb 2023), the ESG “juggernaut seeks to make business, and the world environmentally cleaner, socially fairer and governed better.” But as Zweig asserts, he doubts that most people investing “realize how much they are paying and how little they are getting.”
At the average ESG fund, the effective fees can be three times what’s reported, according to a new study. That’s because these funds—also often called green, sustainable or responsible—are nowhere near as pure as they purport to be.
There is global action on improving metrics and measurement processes. The International Sustainability Standards Board (ISSB) is in the process of defining a global baseline of reporting standards. This is also supported by the innovative work of the Taskforce for Nature-related Financial Disclosures (TNFD) which is focused on defining a consistent framework for measuring and reporting on nature-related risks.
But there is sharp criticism around action. Many that assert that corporations, notwithstanding their commitments, are either not doing enough, or what they are doing often reduces and distorts the complexity of issues. Whether it is Goldman Sachs’ commitment to 10,000 Girls, L’Oreal’s commitment to HIV awareness, or Dove’s commitment to Real Beauty, there are critics who say these business and brand-aligned initiatives are superficial and in many instances harmful. There are also critics that claim that the monies devoted to social programs are wasteful spending and ought to be invested back into operations or shareholder returns. This has taken a political turn, where States are now attempting to boycott companies that assess investments according to ESG criteria.
So what are we to make of ESG, the three letter acronym that reduces the complexity of nature, climate, and biodiversity to a set of debatable metrics; that inserts an S for social when it is really only a weak link to harmful destructive social inequities; and a nod to Governance that is rarely, if ever, discussed in terms of how governance is shaped by what voices and with what guiding principles. While we understand the convenience function of acronyms, we also recognize how shorthand is the way we integrate issues into systems without challenging them. Giving something an acronym is a way to recognize without true respect.
We can honour the work and ambitions of Sister Daly by starting with a People First approach. We can start by using real words to name, understand and reveal the complexity of human issues and conditions. For one example, the acronym (or more accurately, “initialism”) FOMO – fear of missing out - reduces a complex array of feelings and contexts - envy that one can’t be involved for perhaps financial or physical reasons, wanting to know what is going on because one is curious, fear of aging and being left behind - into simply, competitiveness.
We can dig deeper into the drivers, needs and aspirations of people. We can ask, for example, why do people fear missing out? Is it about power, camaraderie or fear of failure? And what would change that? Understanding this is the power of qualitative, human-to-human research – or what we call People Research.
Yes, we can be honest that we really like the convenience of shorthand, but we need to be cautious of how this type of language strips us of the truths or our condition. If we agree that language shapes us and the range of possibilities, then exploring our complexity with long-hand language is an important first step.
If we could speak the truths of E, S and G, we would see the depth of interconnectedness between private and public interests, biodiversity and human life, corporations and choice. And then, perhaps, we might come to trust the corporate conversation, and with that trust, create a marketplace that is mutually beneficial for nature and people.