The 10 biggest misunderstandings about ESG
Why is everyone in the media so confused and why are the industry associations not helping?
Very puzzling times for the sustainable finance community and how it is perceived, why isn’t there more clarity is an important question we must ask.
Politicians are filling this vacuum of clarity and pushing ill considered “anti-ESG/anti-Woke” agendas and in some cases passed state legislation in Florida and Texas.
Fortunately, cooler heads are prevailing in many other states now, but where is the missing clarity?
Let’s see if we can start to help (and very big hint, watch for a much bigger article on this soon) by highlighting the 10 biggest misunderstandings being fostered, for whatever reason, by many on all sides of the equation when it comes to ESG here in 2023. More in this video masterclass we did for Brown last fall if also of interest
The 10 Biggest Misunderstandings when it comes to ESG
ESG are a series of many issues, not one single thing, so let’s stop talking about ESG as if it is one thing - rather hundreds of different issues which present possible risks and opportunities, some major, some not as significant.
Sometimes data can help but we have to be more specific as to how. ESG data is a useful potential red flag indicator on corporate behavior, for example, but much less effective at identifying opportunities for investors. Is it any surprise that the best sustainable investors across asset class are active managers? (More on that in that upcoming next article hinted above)
ESG data has a history of being oversold and this needs to be recognized and accounted for (ESG data as it stands often does not identify what companies need to do differently, for example, and is more about risk to companies as opposed to how companies impact the world).
Standards can help, but they need to be clear on what they are and are not, and what they can and cannot do.
The same is true of the TCFD (which is useful, but we have to add clarity on specific purpose and what is needed beyond just TCFD).
That said, we very much welcome increased disclosure requirements, such as the proposed SEC climate disclosure rule and the EU’s SFDR, even if all such regulations really are works in progress, as transparency encourages action, so let’s keep at this.
The same is true of Net Zero commitments as well, it does create an environment that will require action, but when, and we need to focus on how to raise the missing Trillions of dollars needed to solve the SDGs and to enable the true, necessary global low carbon transition more than anything before it is truly too late (and how much geopolitical activity is really intended to act simply as a delay tactic on solving this is a question that could use more investigation).
Sometimes investing can help when it comes to ESG issues, but not always (and please please, pretty please, let’s all stop using the phrase ESG Investing - why did this become du jour, just stop it)
Accusations of greenwashing are actually a good thing, not a bad thing, as it helps encourage authenticity, and we need to move out of the age of ESG elixir, so that sustainable finance become modern medicine.
Speaking of this, there indeed are ways and methods that sustainable investing is and can be both effective and transformational, but we need to be honest about what works, and more focus is needed on scaling what is identified as working for purpose.