Gustavo Bernal Torres
The Economist: Special Report on ESG
ESG investing is broken. It needs to be streamlined and stripped of sanctimoniousness.
The report fleshes out why ESG metrics should be streamlined according to their material impact on a company and why it makes sense to split up the E and the S and the G to create a more customised approach to materiality. It also makes a case for investing in impact funds for those who want to make impact, rather than risk-management, their top investing priority.
The simplicity of the cover leader's prescription -- boiling down the E to emissions -- is not meant to suggest all other issues are unimportant. In many ways, strengthening diversity in the workplace or applying sound corporate governance should be part and parcel of any good manager's job, with or without ESG scores. And even lowering emissions requires holistic thinking about deforestation, biodiversity and respect for local communities. But lumping such three disparate categories together into a single scoring system ignores inevitable trade-offs. And focusing on emissions has the advantage that carbon measurements are improving, net-zero commitments are increasing and regulation is pushing to standardise them, to make them more meaningful.