What is the Eskimo-Aleut word for ESG?
ESKIMOS have over fifty different words for snow^. Financial institutions only have one ESG but, as various commentators anxiously highlight and bewail, way more definitions of environment social and governance investing than is accurate, useful or comfortable. Indeed, not only has the ESG lexeme got out of control but – whisper it softly - some ESG investment claims do not stand up to scrutiny.
Of course, there is the important matter of the current lack of an agreed ESG standard to consider. Meantime, “ESG” does much virtuous heavy-lifting almost everywhere. With meanings and definitions often competing and conflicting with each other or else being actively counter-productive in accomplishing what they set out to do. For example, when it comes to combatting climate change, fossil fuel and environmental degradation via your carefully considered choice of investment decisions.
Florid investment claims have, of course, existed since time immemorial and come with the territory. There will always be snake oil salesmen and saleswomen. Sometimes well-intentioned ones too. Truth gets bent and – often with the benefit of hindsight - false assumptions made. Recent corporate history is littered with scandals, mis-selling and disaster of many stripes (as Professor Randall S. Peterson and I discuss in our recently published book Disaster in the Boardroom)
Yet recent push-back against the value of ESG investing (or investment claims) has increased to storm force with some expert commentators suggesting ESG has reached the end of its “useful life” while others even want to remove the use of the term ESG from our future financial vocabulary. Rather touchingly under the mistaken assumption that this intervention offers some sort of solution to these current ESG terminology confusions and mis-steps?
Strangely but wisely, faced with different varieties and conflicting uses/outcomes of something possibly life-giving and vital to their continued existence, Eskimos don’t seek to ban snow! Or come up with unworkable ( and soon easily gamed) definitions but, instead, seek consensus to adapt and expand their already highly-nuanced extensive vocabulary and actions to cope with their changing environment.
As someone clearly interested in the principles and practice of corporate governance, I think we should selectively embrace the principle of some of the ideas proposed in a lengthy draft consultation document (pdf) recently issued by the US Securities Exchange Commission (SEC) but adapt them to our benchmarking of ESG for Uk/Europe based companies. The SEC propose a new set of rules requiring public companies to make ‘certain climate-related disclosures’ in their public reports. This will require these public companies to advise in their reporting what climate related risks they see/face and also clearly detail how they manage those risks.
In the US currently, companies make these declarations voluntarily and, if nothing else, it suggests that the SEC believes that they are not sufficient to be useful for investors in terms of structure, disclosure and analytic terms of reference. Plus there is no liability for the accuracy or inaccuracy of statements and claims made. Formalising such reporting either ensures that many florid claims go away or else still get made with impunity or greater likelihood of later penalty. Additionally, the SEC proposes to include Private Equity within their ESG reporting ambit so this is a further area in which ESG corporate governance in the UK differs from the US.
Rather than throw the ESG baby out of the bathwater for the sake of a few bad apples (or orchard of them), I would suggest that the reporting regime that applies to ESG claims made by UK publicly quoted companies are amended echo or incorporate the most relevant of the final approved version of this SEC template (after this has passed its consultation, discussion and (re)drafting phase. After all, why reinvent the square wheel when it comes to tweaking and tightening the current climate risk and assessment company report landscape? Surely it is better to address vocabulary, terminology and analysis problems of ESG investing currently faced at the company report level rather than evacuate the investment guidance and values presently operating ESG space due to – understandable but sometimes overblown – concerns about their veracity and usefulness in some instances?
Far from ESG coming to the end of its useful life as a term, it is time to write many more ESG chapters as legends future generations will remember.
Notes to readers
^ Eskimo-Aleut is really a group of languages so is really much more of a language family that uses polysynthesis – base word with many nuanced suffixes – to change given meanings. When it comes to ESG, this base word is in practice gaining multiple meanings (& means different things to different audiences) while it masquerades as an accurate descriptive term.
For your daily fix of ESG lexemes read almost any form of financial writing you care to find, for a brief list of snow lexemes please go here.
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