What ESG Can Do Better In 2023: A Look Back At 2022
2022 was a tumultuous year for ESG. There were some small developments along with a few big ones. However, it was also a year when it felt like ESG was regressing and getting all the wrong attention.
You have an “anti-woke” movement from the political right, there were numerous greenwashing scandals and raids, climate troubles, as well as brazen and blatant lobbying of fossil fuel industries muddying conversations, to list a few.
All of this has put ESG in a unique position. For sure, there were good things that came from this, but in order to leverage the future, it’s important to look at some of the problems and mistakes ESG has made over the past year. Through understanding mistakes, we can push forward in the new year with new insights and understanding along with innovative ideas.
Problem #1: The Learning Curve
It doesn’t help ESG much that there isn’t a specific definition for it yet. On top of reporting standards from countries, it can be a tricky slope to deal with. Beyond that, when people think of ESG, a lot of people tend to focus on the environmental part of ESG - and rightly so given today’s climate.
Fortunately, the other components are being drawn in a little from some problematic circumstances - notably the “anti-woke” movement - but this has only happened amongst investors. When it comes to the general public, it’s easy to think in a similar fashion to Elon Musk.
In Musk’s case, the former richest man on Earth said it was a scam in May 2022 after his company was removed from the S&P 500’s ESG index.
Moving forward, it’ll help to explain that while Tesla is making electric vehicles, which is good environmentally, the other two areas are where Tesla struggles a lot. For governance, Tesla has yet to have a low-carbon strategy or code of business conduct. On the social part, workers have faced poor working conditions and racism.
Over this year, there will be more tension amongst a number of issues and it’ll force the social and governance aspects to share the spotlight. It’s in those moments that we will have opportunities to further define and get people to learn about these other issues and aspects of ESG.
Problem #2: “Green Hush”
Because of the rising number of scandals from companies that were greenwashing, many companies are choosing to stay silent about their new initiatives. This phenomenon is now being referred to as “green hush”, where a company will make a stance about something, but won’t publicly announce it out of fear of being called out.
Due to the raids in the EU over greenwashing, the fact there are few reporting standards globally, and the complexity of ESG itself, it makes sense for companies to hesitate. As more information comes out and larger corporations are forced to issue public reports, smaller companies will be able to learn from those and make ESG reporting more mainstream and truly transparent.
As for what can be done moving through the new year to solve this it comes down to the government to issue standards. The sooner we can ease companies' minds about what is reasonable and what isn’t will allow for more collaborations across industries.
On an individual level, this can look like spreading the word about reporting standards and researching what good ESG initiatives look like.
Problem #3: Money Talks
Fossil fuel lobbying has caused a lot of damage in various ways but money issues didn’t just result in lobbying efforts making ESG take a step back. For one, the only reason the FIFA World Cup was in Qatar in 2022 was a result of Qatar bribing officials.
As a result, Qatar came under scrutiny for all kinds of human rights issues as well as views on homosexuality. Even before the games started, there were many issues involving migrant workers and the housing that was provided to these individuals.
Money could also be involved in COP27 in a few ways too. Not just with the lobbying from the oil-rich United Arab Emirates sending over 1,000 delegates there, but with its sponsor too: Coca-Cola. With the company being the biggest plastic polluter in the world, the fact the company remained vigilant about being the sponsor for COP27, was almost emblematic of COP27 - a COP that had little progress being made.
As we move forward in the new year, chances are there will still be money issues and we will see more companies or countries watering down particular events and conversations. It’s reasonable to say that in the wake of the “anti-woke” movement occurring in the US as treasurers move trillions out of one investment engine into another that aligns with fossil fuels.
This is one of the more challenging battles as it’s a battle of resources. However, things can be done. When we frame conversations about ESG and what it means, people can begin to understand a little bit. Investors can persuade companies to make changes that align with overall ESG values. The general public can elect government officials that hold more ESG values and give them positions of power to make policies in low and high branches of government.
There Is A Lot Of Work To Be Done
ESG has a long way to go, a marathon where some of the problems seem silly to have, and you’re forced into the whole mess anyway. But at the end of it, it is worth following through.
We are on the cusp of ESG being further defined and companies are making radical changes to hit environmental goals. Goals that they set themselves because investors demanded them. There is growing interest in ESG every single day too. And particular countries that adopt ESG values early can show how what they’re doing can be scaled up or down to fit other countries' needs. ESG can be tailored to fit any circumstance.
