The Issue With ESG: Where The Blind Is The King And Oil & Gas Leads Sustainability
In the land of the blind, the one-eyed man is king. In the land of green marketing, ESG ratings help us navigate the world better. At the very least, they should.
Could the ESG universe, however, be a "land of the blind"?
ESG ratings are provided by various rating agencies, each of them usually using a different in-house methodology to define and assess the Environmental, Social and Governance factors. Due to a lack of standardisation and regulation in this field, the range of ESG scores for any given company has become quite diverse.
Reliable ESG ratings should assist us in identifying companies with significant sustainability impact and allocating capital to causes that accelerate the sustainability transition - let’s use the term impact investments for the sake of the argument. According to the Global Impact Investing Network’s research from 2020, there is around EUR 500 billion AUM allocated to impact investments. Although this segment is projected to grow rapidly, to an anticipated 12 trillion by 2030, it still accounts for a small portion of global capital.
The difficulty emerges in allocating these limited funds to companies whose business models directly promote the transition to a more sustainable world. From the investors’ perspective, we should be looking for companies with high ESG scores. But here is the crux of the problem: as long as firms like Shell - whose business model is essentially based on fossil fuels, are classified as sustainability leaders by the world’s main ESG agencies, we run a serious risk that the scarce impact investing funds will be spent on the wrong causes.
KnowESG wants to change this. In order to promote transparency in the field of ESG, we are creating a unique platform aggregating the most prominent ESG rating agencies and sustainability resources like courses, news and events.
Our mission is to provide access to curated ESG data and information to everyone around the globe - individuals, companies, and investors - to empower them on their sustainability journeys.
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