So when a public relations conference told me this week that ESG is the next big thing,I took it as a warning that it’s about to be over.
In the last few years,environmental,social and (corporate) governance,or ESG,has become an increasing concern for companies which realise that securing their long-term profitability depends on the wellbeing of the environment and the societies in which they operate. The “governance” part is monitoring that the organisation isn’t making decisions which deliver profit right now but run counter to actual laws or implicit norms. Banks turning a blind eye to the money trail leading to paedophiles,for instance,or casinos knowingly participating in money laundering.
ESG can seem simple:commit to reducing emissions,develop a modern slavery statement and,above all,become a values-led organisation. Only,anyone who believes it’s that simple is almost certainly doing it wrong.
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That has always been the case,but the war in Ukraine and growing concerns over China’s activities at home and abroad are making it more obvious how just how wrong the simplistic approach is.
Germany is the poster child of half-baked ESG. Under former Chancellor Angela Merkel,Europe’s largest economy began shutting down its nuclear power plants,planning to use gas as a “bridge” while transitioning entirely to renewables.Many analysts warned against the move,pointing out the strategic dangers of relying on Russian gas. But Merkel persisted and many German investors fell in line,in the name of ESG.
Of course,we now know how that turned out. The ESG value of the nuclear shutdown was one-dimensional:it failed to balance the pros and cons of nuclear against other potential fuel sources,or take into account the geopolitical context. As a result,when Putin invaded Ukraine,Germany continued to pay for Russian gas and,in doing so,funded a war it opposes. In fact,it wasn’t until the beginning of September,whenPresident Putin retaliated against NATO sanctions by shutting off gas supply to Europe,that many European countries,Germany included,stopped handing hard currency to Putin.