Is ESG the solution to climate and social problems? – Carlos Joly

A much more radical response is needed than that of companies addressing environmental and social objectives.

The existential threat of climate catastrophe will not be stopped by ESG tools (Marti Bug Catcher / shutterstock.com)

“Environmental and social governance” (ESG) has become a dominant idea in much of the investment world. It refers to screening techniques by which pension funds and mutual funds apply environmental, social and governance considerations to potential investment objectives.

In a capitalist economy and political system focused on the welfare of its middle class, it is assumed that positive change can occur by mobilizing capital behind such ethical causes. A well-functioning economy is believed to require a reliable natural environment as the basis for the well-being of society, which it is understood that capitalism can act prudently to maintain.

Employee pension funds set up by governments, companies and trade unions are increasingly using ESG. Many of them have adhered to the United Nations Principles of Responsible Investment, which are now nominally associated with nearly $ 4 trillion in assets under management worldwide.

Difficult to sustain

When I co-founded UNPRI almost 20 years ago and chaired the group of experts that drafted its principles, I believed in this basic premise. However, this belief is becoming increasingly difficult to sustain, for three reasons.