ESG is a trendy topic in the world of CSR: just this month, the term “ESG” has been searched about 50 times per day, mainly in the Western World and in East Asia. Criticism has risen, notably in green finance. A report by Greenpeace Switzerland and Luxembourg showed that ESG-rated investment did not bring the expected impacts, and that the lack of clear consensus of the term increases the chances of greenwashing. So what actually is ESG?
ESG means environment, society, and governance. It is widely used in the world of finance to evaluate the sustainability of investment. Only in 2022, ESG funds reached about $41 trillion US dollars. It was later transferred to the corporate world to assess business behaviour. ESG gathers metrics for each of its components: under “environment”, one can find measurements about the biosphere, the GHG, energy consumption as well as water consumption. Under “society”, one must take into account Human Rights as well as employee’s well-being. And under “governance”, one refers to tax payment, ethics, political involvement etc.
How different is ESG from CSR?
Recently, there have been lots of articles published setting, once for all, the difference between ESG, CSR, and sustainability. The truth is that the nuances are often tight when it comes to the corporate world, and some companies would use the terms that suit better their message and the impact they want to have on consumers. I actually made a presentation on my LinkedIn page. In a nutshell, sustainability is an objective to attain, CSR, a programme to meet this objective, and ESG, a way to measure progress beyond mere economic.
So does ESG solve the greenwashing around CSR?
Unfortunately, no. Just like with CSR, there is a gap between the promise of action and the actual action. Additionally, the lack of a standard definition of what is ESG creates room for greenwashing. Moreover, the promise of high returns is false as demonstrated by a study of the University of Chicago: they analysed about $8 trillion of investors savings rated by Morningstar and concluded that, although they attract more capital, they didn’t perform better than less sustainable ones. Another research of the Columbia University and London School of Economics stated that ESG investments performed worse in environmental and labour compliance, and that companies didn’t necessarily improved their labour and ecological conditions.
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Find all chapters of the ABC series here below:
- What is CSR?
- What is materiality?
- Who are the stakeholders?
- What is ISO 26000?
- What is the Swiss regulation on CSR?
- What are scope 1,2,3 emissions?
- What is GRI?
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