Written by 3:13 am EU Investment

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

A far more radical answer is needed than corporations tacking on environmental and social goals.

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The existential threat of climate catastrophe won’t be arrested by ESG tools (Marti Bug Catcher / shutterstock.com)

‘Environmental and social governance’ (ESG) has become a mainstream idea in much of the investment world. It refers to screening techniques through which pension and mutual funds apply environmental, social and governance considerations to potential investment targets.

In a capitalist economy and political system focused on the wellbeing of its middle class, the presumption is that positive change can come about by mobilising capital behind such ethical causes. A well-functioning economy is deemed to require a reliable natural environment as a foundation for societal wellbeing, which it is understood capitalism can act prudentially to maintain.

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

Hard to sustain

When nearly 20 years ago I co-founded the UNPRI, and chaired the expert group that drafted its principles, I believed in this underlying premise. That belief is however becoming harder and harder to sustain, for three reasons.