The way we understand ESG today tends to inform risk management from an investment perspective instead of indicating environmental, social, and governance outcomes from a broader view of stakeholders.

Mario Elias Gonzalez

In the last months, I have seen criticism of the newest sustainability wave, ESG standardization and ratings, which seems to me to be all about ratings and standard-setting. I remember discussing with a friend how the financial guys would potentially drive this agenda in a dangerous direction, which I think is happening. 

ESG standardization and ratings are not necessarily driving green action. A high ESG rating does not correspond to lower CO2 emissions or high biodiversity contribution. Little progress has been made on the climate and biodiversity front:

• Emissions are barely decreasing
• Threats to terrestrial and marine biodiversity have increased, and
• None of the 21 Aichi Biodiversity Targets that should have been met by 2020 have been achieved by all OECD countries.

We are far from meeting the environmental goals of the SDGs by 2030!

The Organization for Economic Cooperation and Development (OECD) believes that ESG standard-setting should focus more on CO2 and other climate-related issue performance and less on the dissemination or disclosure of corporate policy and objectives.

According to the OECD, “ESG rating providers seem to give less weight to negative environmental impacts, while they give greater weight to the dissemination of climate-related corporate policies and objectives, with a limited assessment of the quality or impact of such strategies. Such limitations could make it difficult for investors to use E-pillar scores in order to align portfolios with the low-carbon transition.”

Exxon is rated top ten best in world for environment, social & governance (ESG) by S&P 500, while Tesla didn’t make the list! ESG is a scam. It has been weaponized by phony social justice warriors.

Elon Musk

“Greater transparency and accuracy of the meaning of the scores and metrics of the subcategories could contribute to a better alignment of the scores of ‘pillar E’ for a specific purpose, such as assessing the risks and opportunities of the climate transition, or broader environmental impacts,” the report reads.

Other reports have reached conclusions similar to those of the OECD, with a correlation between the level of disclosure of ESG data and MSCI’s ESG ratings. On an equally worrying level, IOSCO has said that possible conflicts of interest may arise since ESG ratings and data providers can offer other services to companies in relation to ESG performance. The U.S. Securities and Exchange Commission The United States also recently identified a risk of conflict of interest in ESG products.

Case Study: a partnership to reverse the trend

Adidas and Allbirds traditionally compete in the shoe market. But the two companies changed everything, partnering in a 12-month project to create a new approach to sustainable footwear from design to materials, manufacturing to delivery, and making the Futurecraft. Footprint high-performance sports shoe. With 2.94 kg of CO2e per pair, the shoe has the lowest carbon footprint of all high-performance sneakers. Futurecraft.Footprint begins with a release of 100 pairs this month before a launch of 10,000 pairs in the fall and a broader launch for the spring of 2022. However, reaching that point was a new process for both companies.

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Photo Credit: iStock.