What it is, where it came from and the direction it may lead…..

ESG is a recent development in corporate disclosure requirements which focuses on its Environmental, Societal and Governance initiatives. It is a result of increasing demands for transparency from Shareholders, Customers, Governments and their citizens as well as other stakeholder groups in order for them to make investment, business, employment and other key decisions.

Many large organizations now are expected to report this data as part of their annual disclosures with sufficient detail to be reviewed by specialist ESG rating agencies that provide guidance to investors. There is no single standard that is employed across industries or regions making comparisons problematic. Instead to a large degree organizations themselves decide on what to report. However what is presented to the outside world is typically subject to scrutiny by professional fund managers and can be subject to external audit review. For that reason the data is frequently acquired and collated by the organizations finance teams from information provided from several functional area’s requiring a change in skill set for these professionals.

ESG is a result of several historical events that has impacted organizations investors and stakeholders. Failures in governance leading to loss of shareholder value, business disruptions following social activism and failures to respond to environmental challenges has led to demands for clearer and modified strategic objectives, truthfully reported. In the most keenly observed area, environmental accounting, misleading and false statements have led accusations of green washing and subsequent reputational damage.

The whole initiative is at an exciting period of time for ESG and there is a lot of enthusiasm from students and the general public who view this as a way in which corporations might play a leading role with the environment and with societal changes, but is this misplaced?. There is a risk of confusing the goals of ESG with those of “ethical or impact” investors who place their cash in causes they believe in. In May of 2022 Elon Musk reacted to his poor ESG standing by saying it was “a scam”. The fact that oil producers and arms manufacturers had better ratings than the world’s leading electric car manufacturer tells us that ESG is not about “doing good in the world” necessarily, it is rather about an organization ability to continue business in the long term, to be robust through changes and able to meet multiple threats. The case of Tesla also showed the world that there is a political aspect to ratings also. The allegations of racial abuse and poor safety records at Tesla plants were imprecise and not quantified and the fact that Musk himself is a larger than life leader and over communicator appears to have been part of the reasoning for the score. Apparently he is being punished for both too little and too much transparency. These are value judgements rather than scores, and all corporation need to take heed. A second question arises in this climate; do investors really care? Their goal is to make money in the long run and they have always made their own assessments linked to risk, predictions and prejudice and some people question whether these rating add much value to their existing perceptions. Already there are justifiable complaints of an overly liberal agenda from predictable quarters on the political right.   

This site is an inquiry into the surprising origins of legislative actions and standards facing organizations, the current state of play and observations and predications where future developments may take us.

Finally, the word “quality” has been hijacked by the business community over the last few decades, but here is used in the traditional sense to describe a degree of excellence as being a distinguishing characteristic. This can apply to data as much as it can apply to a product or service. In order to achieve true data quality I believe a holistic understanding of its intent is necessary and therefore an understanding of the impulses and motivations that drove each measurement forward. Additionally we face the challenges of both quantitive and qualitive data interpretation, the risks of over disclosure and a business’ right and obligations for a certain degree of secrecy. For those reasons I’ve looked historically into each ESG topic and speculate on their potential future.

Neil Manson, September 2022