ESG labelling provides limited insights for investors

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Here’s a nice piece by Alison Taylor about this Financial Times article. Here’s an excerpt:

So the other big story of the week is that now ESG is “over”. I’ve been on a few recent podcasts predicting the acronym won’t last so glad to see I’m on the money!

This article discusses whether ESG lines up with the Sustainable Development Goals and of course it doesn’t, because why on earth would it? (Not sure why this is even worth studying as there is no reason there would be a correlation, but hey ho). The bigger issue is that we are still discussing what is good for investors, and to a lesser extent what is good for the planet and society. We spend almost no time discussing what ESG does for corporate strategy. The answer is, nothing good. It’s a singularly unhelpful concept if our goal is to get better corporate governance and more responsible business.

Why do I say this?

Because it incentivizes ticking the box on 40 things at the expense of a strategic focus on a handful of issues.

Because it distracts senior executives into obsessing about their score.

Because it’s wildly unrealistic about internal capacity and coordination and how companies actually run.

Because it forces companies to treat responsibility as defensive PR, which is an enormous waste of effort that could be spent on other things.

Because it reduces the internal sustainability role to data gathering and cheerleading.

Because it perpetuates the dangerous myth that there’s such a thing as a good company.

Because it facilitates a binary, gotcha mindset that stops us learning what might work.

I’m bored. Can we please get to the point?