ESG: Many companies use an acronym, but few practice it

Which companies are most likely to succeed: those that are solely for profit or those that act in a way that preserves their reputation and social license to operate?

Which companies are more likely to succeed: those that aim for profit at any cost or those that act consistently, preserving their reputation and, by extension, their social license to operate?

ESG: Many companies use an acronym, but few practice it

This dilemma underlies the concept of ESG (Environmental, Social and Governance). The term was first used in 2004 in a joint publication by the United Nations Global Compact and the World Bank. At the time, then UN Secretary-General Kofi Annan wanted to challenge 50 leaders of large financial institutions: how to include environmental, social and governance implications in the capital market?

The initiative gave rise to the popular publication ‘Who cares wins’, edited by the World Bank’s global corporate finance arm. Since then, the acronym ESG was taking the place of other terms already fashionable in the business world, such as “social responsability”on the rise in the 1990s, and the “sustainability”more focused on environmental impact and which was widely used at the beginning of this century.

In addition to incorporating social responsibility and concern for the environment, ESG highlights governance, i.e. the public policy of the institution. Common sense understands that public order is limited to the public sector, but private institutions also have a direct impact on public life, and therefore their decision-making process must be transparent and comply with both internal rules and relevant national and international legislation .

In other words, ESG is a term for to define companies that are fair from a socio-environmental and political point of view.

While the term is buzzing, the corporate universe is far from the ideal underpinning ESG. Some corporate scandals in Brazil are an example of this, with some of the country’s largest companies involved in environmental crimes of enormous proportions, unfair employment relationships and fraudulent management of investments, as well as corruption. And nearly all companies recently caught in situations like these regularly report on their ESG metrics, often concocted to appear better than they are.

The case of the fossil fuel companies

Another example is the companies of fossil fuels. In 2022, many of them, including Shell, BP and Exxonmobil, made the biggest profits in their history during the most widespread fuel and electricity price crisis ever. They have turned the Russian war into an opportunity to increase their income on consumers and governments around the world. Furthermore, they will use these positive results to further delay the transition to renewable energy that could save the planet from a climate meltdown.

There are two things that make the shares of fossil fuel companies even more worrying. The first is that while these companies are the single largest contributors to the warming atmosphere that is altering the Earth’s climate – perhaps irreversibly – they show no signs of intending to do anything about it.

For example, a report released last month showed that ExxonMobil has known accurately since the 1970s that fossil fuel emissions would drive the planet’s climate toward a climate meltdown in the 21st century.

After the release of this report, António Guterres, Secretary-General of the United Nations, called industry leaders “big liars” at the Davos Economic Forum. He imposed a punishment similar to that applied in the 1990s to tobacco companies in the United States, which acted to deceive governments and consumers for decades about the real impact of their products on health.

The second worrying thing is that all the fossil fuel companies claim they have ESG indicators.

Contradictions like this are emptying the meaning of the term, and this is great for companies that don’t care about the consequences of their activity on people’s lives. If companies that lie about their public commitments aren’t punished, there’s no incentive for those to act responsibly. Only one informed and vigilant society it can make the phrase “who cares wins” true in the business world.

Source: Terra

Rose

Rose James is a Gossipify movie and series reviewer known for her in-depth analysis and unique perspective on the latest releases. With a background in film studies, she provides engaging and informative reviews, and keeps readers up to date with industry trends and emerging talents.