It’s time to throw the ESG name into the wastebasket

“It’s time to throw the ESG name into the wastebasket,” says Rothschild, the founder of the Council for Inclusive Capitalism.

Many say environmental, social, and governance (ESG) investing is dead in the corporate and investing world. 

The term ESG was first introduced in 2015, in an article entitled “Who Cares Wins”. As its title states, it stated that investing should be based on determining the corporate “who cares” the ethical responsibilities, encouraging them to act more responsibly. For example, investors could consider an environmental criteria, such as how the corporation is addressing climate change. 

It was around 2018 when ESG reached its golden age. It decorated the front pages of world’s leading financial papers, with thousands of professionals entitling themselves as “ESG Analyst”, over 80% of the world’s largest corporations incorporated the standards, and even a UN secretary general personally met and encouraged the CEOs of world’s leading financial institutions to implement the investing strategy. 

However, what was the problem with ESG that it has declined into its ultimate death?

The answer lies in the word especially coined to condemn ESG: greenwashing. Greenwashing is a portmanteau of the words green and whitewash, suggesting that the corporates are attempting to conceal and deceive investors and customers to look eco ethically (green), exonerating themselves from the ecological responsibilities and frame themselves as innocent (white).

“Investment companies, especially mutual funds and ETFs, are increasingly using terms such as ‘ESG’ and ‘sustainable’ in their fund names to attract hundreds of millions of dollars from investors even when there has been little or no change in the fund’s investment holdings — a practice known as ‘greenwashing’”, remarked Stephen Hall, the legal director of a non profit financial organization, Better Markets, that pursues public interest in economic markets. 

To let it straight, take Starbucks, probably the world’s largest global coffeehouse corporation as an example. Starbucks in recent years have imposed numerous environmental policies as a part of ESG, such as giving reward points and discounts if the customer brings a tumbler, have eliminated the use of plastic straws and replaced them entirely with paper ones, and so on. However, customers have detected the absurdity of Starbucks’ “eco” policies, as they are not that effective on protecting the environment; for example, the paper straws are not recyclable but have to be incinerated. Hence, Starbucks received bitter criticisms and backlashes, that their ESG policies are not to “save the environment” but to deceive the customers to frame themselves as an “ecologically-responsible” corporate, inducing them to consume the misleading “eco-friendly” products.

The world is now awoken from the deceptions of ESG. As Rothschild once again highlighted, “this acronym, ESG, should go away”.