The ESG Brouhaha: Tempest in a Teacup

Abstract

There have been many recent articles and tweets about corporate investors taking Environmental, Social, and Governance (ESG) metrics into consideration for their investment decisions, and how several politicians, business owners, and public figures are reacting to this phenomenon. In large part, the confusion facing ESG is the lack of understanding and agreement about what it is and how we should use it. In reality, ESG is nothing more than a set of metrics, i.e., quantifiable measures, that businesses and other stakeholders can track to better assess how Environmental (e.g., climate change), Social (e.g., human rights abuses) and Governance (e.g., in-house sustainability committees) factors impact a business, and in turn, how the operations of that business impact the environment and society. This article purports to clear the several points of confusion, including what ESG is, the lack of standardization in terms of what to measure and how, what to do with the plethora of ESG ratings available and how purpose-driven companies can use ESG to their full advantage.