Why ESG ratings are like the innovation of Netflix

The Netflix series Inventing Anna captivated listeners with the wonderful story of a young woman posing as a German heir with high aspirations to open an art club in her name. The hit series expands on the scandal involving Anna Sorokin, aka Anna Delvi, who made her way to social status and gained notoriety after an exposure article in 2018 drew the attention of famed producer Shonda Reims.

As illustrated in the series, Anna sought out investors for her creative endeavors, establishing herself as a word, albeit elusive, asset. And although the evidence of his wealth was uncertain, his supporters chose to ignore the obvious red flags given by his assertive nature, and the fact that no one has yet called his bluff (much like the modern day presentation of the emperor’s new dress).

With that in mind, it’s interesting to note how Anna’s story parallels the ESG ratings that are designed to appeal to wealthy asset managers who prefer to go beyond monetary matters and into a state of uncertainty and ambiguity.

And, as it turns out, only time will tell whether the claims being made will yield any significant income. So, in the meantime, let’s move away from identification fields and warning signs.

However what is ESG?

Like Anna’s accent, the word ESG sounds unusual and sometimes it’s hard to know where it came from.

In short, the ESG evaluates the performance of organizations based on environmental, social and governance issues. Pillar E considers investments related to the environmental impact of the firm (such as carbon emissions) as well as the protection or development of natural capital (such as the promotion of biodiversity). The G-column stands for governance and often focuses on the quality and effectiveness of board members (for example, encouraging diversity representation and ensuring accountable decision making). For S. Pillar, it relates to the social aspect of a firm, both internally (i.e., supporting employee rights, such as parental leave) and externally (i.e., engaging in social concerns such as abortion policy).

Although it goes without saying, these broad columns are not always easily aligned – making evaluation and integration complex and messy. Nonetheless, this acronym has become a favorite on Wall Street, and is fanning the flow of funding due to both social pressures and policy changes.

ESG replaces earlier notions such as TBL (which stands for triple bottom line, represented by people, planets, profit) and while TBL focuses on ethical business management and resource efficiency, ESG puts the business economy behind climate concerns. , Social Justice Campaign and C-Suit Dealing.

ESG has taken the stakeholder model to another level and since it is still fairly new in the investment sector, the real impact has yet to be seen.

This was in 2006 when the ESG first attracted worldwide attention and this was largely due to the United Nations Responsible Investment Policy (PRI) report, which called on companies to include the ESG as part of their financial assessment.

PRI leveraged a survey entitled ‘Who Cares Wins’ in 2005, which builds on the business sector for sustainability and calls on the capital market to finance social enterprise. And the study was a direct response to allegations made by then-UN Secretary-General Kofi Annan to do more for the global good of the financial sector.

Accordingly, financial institutions are supporting the ESG in accelerating the declarations of international organizations to be “the right thing to do”. And this is consistent with Anna’s statement that “people pay for all sorts of reasons – guilt and love are the two biggest ones” – and in this case, guilt is paying off. To bring it about, he played with both hands to provide financial support for his luxurious lifestyle.

Fake to make it.

Just as Anna’s fashionable attire captures her true spirit, so too do organizations use ethical labels and social campaigns to promote good works. Indeed, according to an ESG 2021 global survey, a major motivation for ESG investing was brand-based – where companies sought to establish a positive image by aligning themselves with popular values.

According to Jeff Dangremond, as shown in the ESG Decoded Podcast, banks are extremely concerned about their reputation risks, which is why interest in ESG is so high.

The “S” factor, in particular, has been dominated by increasing pressure for DEI (diversification, equity, and inclusion) over the past two years. The difficulty of establishing metrics and tracking social outcomes, however, makes it difficult to come up with opportunities for public relations promotion; And since administration concerns are generally not preferred as a means of publicity, the environment is often the most widely characterized aspect of ESG.

The “E” column is supported by both policy pundits and marketing mavens who want to satisfy an environmentally conscious consumer base, and while some organizations are really concerned about the environment, others simply know how to play a role. For example, British Petroleum (one of the world’s largest oil corporations) and Ogilvy & Mather (one of the world’s most successful marketing and communications companies) developed the idea of ​​a carbon footprint. For the Beyond Petroleum marketing campaign, BP has featured a carbon footprint calculator on its website that speaks to the accountability of its viewers rather than itself.

The goal of the campaign was to rebrand BP as a proponent of environmental stewardship, and for a time, this rebranding worked. BP has been praised for ranking first in 2004, 2005, and 2007, and second in 2006, from Fortune’s annual corporate accountability rating. Needless to say, the 2010 oil spill ended its great stability. And yet, despite the fact that BP has been created, just as Anna gets into trouble for her deceptive work, so BP is back for the second time with a goal-neutral emission mission expedition.

So BP has refreshed its ESG performance, and only time will tell whether these ratings serve as a better metric than Fortune’s Business Liability Rankings.

For Anna, another spot on the spotlight seems to be on the horizon while negotiations for a documentary are underway.

You have to pay to play.

Anna was released from Rykers Island in 2021, and although she was re-arrested (this time by immigration authorities), her crime and time seem to have paid off in the end.

2021 was also a big year for the ESG, and a full reporting process and expert agencies have been challenged to assist in the evaluation arrangements – with a fee, of course.

The cost of ESG research services can range from a few thousand to a few million, depending on the firm, the evaluation scope and the standards used. And despite the reporting mechanism and agency watchdogs’ mismanagement of the metrics or inability to ensure corporate liability, there are no plans to loosen their reins.

Similar to Anna’s lifestyle, ESG results tend to be inflated and performance ratings are reported to lack rigor. However, banks and businesses are responding to incentives and pressure from global organizations, much like Anna’s associates responded to her power play.

As mentioned earlier, the UN introduced PRI in 2006 with the expectation that countries would sign the proposed standards and, as a result, countries need boards and capital market boards.

Although loyalty to the PRI is voluntary, the pressure to do so is obvious (even when climate issues or social responsibility counteract the ESG claim).

Sources are vague when people promote their own agendas.

Just as Anna aimed to downplay her identity, so did the ESGO reduce her connections.

The ESG was born into the UN system, and has been adopted as a way to advance the United Nations Sustainable Development Goals (SDGs), for which the signatories to the PRI report are responsible – both with the payment of an annual PRI membership fee to help the UN achieve its stated goals.

What’s more, the most widely used ESG framework for tracking progress was established by the Global Reporting Initiative (GRI), an organization that has partnered with the United Nations and whose founders were involved in the United Nations Environment Program.

Although there are more than a dozen frameworks for ESG, the standards set by GRI are the preferred choice (adopted by 73% of the world’s top 250 companies) and so it is unclear who is conducting the program.

Just as the Anna Arts Club was really about improving Anna’s condition (using acquaintances and clubs to get there), so was the progress of the UN’s capacity on ESGO business practices and capital investment.

Despite the fact that the ESG is involved in the upper echelons of global organizations, and the disclosure of inconsistencies in information between intergovernmental organizations or raising concerns about ESG effectiveness, the United Nations does not want to abandon its plans.

And for most of us, whether we like it or not, most of our leisure funds are for travel.

Kimberly Josephson

Dr. Kimberly Josephson is an Associate Professor of Business at Lebanon Valley College and an Associate Research Fellow with the Consumer Choice Center. He taught courses on global sustainability, international marketing and the diversity of the workplace; And his research and op-ed has appeared in various outlets.

He holds a doctorate in global studies and commerce and a master’s degree in international policy from La Trobe University, a master’s degree in political science from Temple University and a bachelor’s degree in business administration with a minor in political science from Bloomberg University.

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