The formalisation of the ESG concept is a relatively recent development, with measurement and framework adoption taking place over just a few years. Reflecting on this, one cannot help but wonder: if the ESG values weren’t already enshrined in the broader fabric of human societies, we might have faced even more profound levels of anarchy and social unrest.
The common criticism revolves around the diverse metrics used to measure the E, S, and G factors. Detractors argue that these metrics are distinct and cater to different needs. Well, isn’t that precisely the point? Companies are multifaceted entities, and a one-size-fits-all approach simply won’t suffice. The ESG concept acknowledges this diversity and encourages a holistic assessment of corporate behaviour. The absence of consensus on what defines a “good” or “bad” company only underscores the complexity of the business world, making ESG all the more essential.
Critics also raise concerns about companies “gaming” the ESG scoring system. But should we throw out the entire hope on ESG, just because of potential loopholes in the frameworks? Credit rating agencies faced similar issues in the past, yet we didn’t abandon credit ratings altogether. Instead, we improved and refined the system and ESG deserves the same treatment.
Another accusation is that investors have overhyped ESG, likening it to the past century’s financial innovations. Yes, there has been hype in the past without meaningful regulatory role, but that doesn’t diminish ESG’s legitimacy. We have seen overhyped technologies and financial products before, but that didn’t invalidate the internet or social media or the concept of business diversification. So ESG, like any other tool, needs responsible usage.
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Denne historien er fra October 07, 2023-utgaven av BW Businessworld.
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