Two writers on the Harvard Business Review blog claim that ESG (that is, adding environmental, social, and governance criteria to investment decisions) is not bad when you stick to the straight and narrow: identifying material risks from non-financial criteria.
“To us, ESG is simply about identifying material risk factors that matter to company profitability and shareholder value over time,” write Daniel F. C. Crowley and Robert G. Eccles.
Sounds good, but then:
“Climate change is one such risk for many companies—particularly those with shoreline assets that are vulnerable to rising seas, or those (such as fossil-fuel companies) for whom future revenue would be greatly reduced if governments start taxing carbon.
My comment: When shoreline assets are “vulnerable to rising seas,” companies and individuals rely on insurance, or local monitoring of beach erosion, or they decline to build there. Former president Barack Obama has a house overlooking a bay at Martha’s Vineyard, but seems willing to handle potential sea-level rise.
The authors continue:
“As a result, greenhouse gas emissions are a material issue for an oil and gas exploration company, as are air quality and employee health and safety.”
My comment: Yes, regulation could really undermine oil and gas exploration. That’s a regulatory effect (not “environmental, social, or governance”—assuming governance means company governance).
Here’s the kicker:
“But according to the Sustainability Accounting Standards Board (SASB), which helps identify risks by industry, so are human rights and community relations and business-model resilience.”
This is where the logic slips off the rails. Aren’t those just a part of day-to-day business? Have a look at the SASB standards . . . and watch out.
Image above is of Carmel-by-the-Sea, California, taken by David Mark from Pixabay.