ESG turned into competition and that doesn't make sense, says environmental economist

The term ESG (acronym in English to define environmental and social governance practices), which has recently become a darling among companies, has also become a competitive currency, with hundreds of different forms of assessment.

“‘My ESG is better than yours’. It’s not there, folks”, says Indian Pavan Sukhdev, global reference in green economy and international finance, and president of the WWF (World Wide Fund for Nature) , one of the main NGOs on environmental issues.

Sukhdev participated, this Wednesday night (8), in the last conference of the current season (called the Reconnection Era) of Fronteiras do Pensamento. His speech was broadcast online to the participants of the lecture cycle.

“We know that if Moody’s and Standard & Poor’s, the largest credit agencies in the world, worked in competition with each other, it would happen that someone with bad credit in one would have great credit in another. This does not happen”, exemplifies the environmental economist, noting that, of course, there may be small differences in these credit analyses.

Sukhdev says that you can find more than 600 different ESG methodologies. According to the economist, there is no consistency between what companies assess, how they assess, what they include or not in the analyses.

“Everything is different. This cannot be the way to assess companies “, says Sukhdev, who, continuing with the reference to the financial market, states that, if the credit ratings of companies were done in the same way, there would not be a financial system or a credit market.

“Unfortunately, we are facing something in sustainability that we do not have credit for. We need to follow this path. We need to reach the point where ESG is no longer just competition, but a form of collaboration. We need a common base,” he says.

For him, however, there was already an evolution in the matter during the COP26, United Nations Conference on Climate Change, which took place in November, in Glasgow, in the United Kingdom .

According to the expert, sustainable companies need to have a positive impact on fine capital financial (for its shareholders), natural (for the planet), social (for the society in which it operates) and human (for employees). And, for that, it is necessary to change the ways in which performance is evaluated, he says.

The problem, in his view, is that the current economic scenario does not bring any hope that humanity can arrive to what is called sustainable development, warns Sukhdev — we would now be in an economy in free fall, heading towards planetary limits.

The economist uses a classic comparison and says that we need to think as if we were crew of a spacecraft.

“We are shooting against planetary limits and we need to make the transition to an economy that is thought of as having limits, like a spacecraft. As if consumption, production and posture, of in fact, impact the safety and integrity of our spacecraft”, he explains.

“An economy that recognizes the finitude of our resources, as well as the damage we can cause if we are not careful to live in harmony with nature.”

Sukhdev, who calls Brazil his capital global natural capital, states that we do not measure how much a company affects human health or the environment.

“Is that right? We need to take into account all the capitals involved, such as well-being, our health, intellect and nature”, he summarizes.

The focus, for example, on taxing bad behavior more, that is, the various forms of pollution, while taxing less for good behavior, Sukhdev says, can help lead to a new form of economy — he calls it the “permanence economy.”

“An economy that delivers well-being at the same time that it provides profit for corporations”, he defines.

According to Sukhdev, on Earth it is necessary to build value without destroying the other various forms of capital. “We cannot continue to pollute as if resources were unlimited, as if our impacts were irrelevant”, he concludes.

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