This week, The Economist’s cover read “ESG: three letters that won’t save the planet” with this striking picture. It describes ESG as an “abbreviation that is in danger of standing for exaggerated, superficial guff” expressing fears it will only be another golden opportunity for consulting firms to sell overpriced services to clients without triggering any meaningful change.
Indeed, investors have been looking under the hood of the $40 trillion ESG industry and have come out dissatisfied. Uncomfortable questions are being raised on definitions and metrics. It has uncovered intermediaries’ conflict of interest when they are funded by private companies but also claim the arbiter’s role. If there is one lesson from the World Bank’s Doing Business adventure it is that one cannot be the judge and the coach. The scary “green washing” expression is all over the place.
While we can understand The Economist’s fears, we should welcome a renewed focus on the role of companies in addressing social issues in and outside of the walls of the company. Consumers, employees and investors have a legitimate demand when asking companies to report on their efforts to be more inclusive and contribute to a more stable society.
The renewed focus on ESG considerations at public companies meets a decade-long discussion on the role of the private sector on LGBTQ+ inclusion. This pressure, often supported by the business and economic case, has translated into greater respect of human rights of LGBTQ+ people in the private sector as well as support for global social change. Today this demand is increasingly expressed through the ESG framework.
Adopting a systematic approach to LGBTQ+ efforts, backed by transparent metrics assessed by independent organizations, is the best way to avoid the current controversy in the environmental ESG reporting area.
The current LGBTQ+ Corporates Indexes have showed some limitations in this level both in their scope and independence [see my October 18, 2021 piece on the Limits of Corporate LGBTQ+ Equality Indexes]. This in turn diminishes the capacity of rating agencies to play their role. Refinitiv as an example publishes an annual DEI index which only uses two metrics: the HRC CEI and HIV/AIDS policies (Y/N) which of course does not capture much when it comes to key aspects such as governance, philanthropy, lobbying efforts, global footprint or employee’s experience.
It is an opportunity to think collectively, with civil society, about what it means to be a good corporate citizen on LGBTQ+ issues, how to measure it and who has the expertise and independence to play this role in the community. Ultimately, this is the only antidote to the “snake oil salesmen” The Economist is warning us about.