In this year’s fun winter series for ESG Clarity, investment professionals in the sustainable investment industry answer questions on characters that would play them in panto, who needs to receive coal as a present, and ESG wishlists.
Here, Boya Wang, ESG analyst at Morningstar, shares how we need to rethink the role of corporations, growing mismatches between what companies manage and measure, and the books he recommends reading.
Winter festivities: Who would be the main character in your ESG pantomime?
Professor Colin Mayer would be my favoured character in my ESG pantomime. With regulatory uncertainties and economic headwinds extended towards the end of 2023, it is fair to ask whether the ESG heat is itself is sustainable. To answer this involves the rethinking and redefining the roles of corporations, especially as corporations have been increasingly recognised as a source of rising levels of inequality, environmental degradation, social exclusion, political divisiveness and mistrust.
It is unsurprising to note that corporations hold the power to reshape capitalism by rethinking the purpose of business. Professor Mayer’s book Prosperity: Better Business Makes the Greater Good presents a radical and carefully considered prescription for corporations, their ownership, governance, finance and regulation. Drawing together insights from business, law, economics, science, philosophy and history, he shows how the corporation can realise its full potential to contribute to economic and social wellbeing of the many, not just the few.
Winter traditions: Which piece of ESG regulation or policy should be given coal this year?
There is a growing mismatch between what companies manage and what they measure. This is undermining the quality of information that management, investors, regulators, policymakers and stakeholders have available to them and leading to a misallocation of resources between what is conventionally measured and what is needed. As the last few years have witnessed a proliferation of providers of information on the sustainability performance of firms, it is unsurprising to see mandatory disclosure of such information lies at the heart of future investment decision making.
Winter wonder: If you could have one ESG data tool that could do anything, what would it do?
Again related to measurement and disclosure, my favourite ESG tool would be a methodology that can assess not only various prevailing ESG topics such as GHG Emission of Scopes 1, 2 and 3, but also the impacts on those who are likely to be affected by such transition towards more sustainable future. For example, workers in Port Talbot who can lose their jobs due to potential closure of the steelworks or garment sector female workers who have already seen their income reduced due to the suspension of the Everything But Arms Treaty by EU, as a sanction on Cambodia’s doctorial leadership.
Winter gifts: Summarise a book all sustainable selectors should read.
The book I recommend is Michael Sandel’s The Tyranny of Merit, which offers compelling explanation of the populist movements and backlash against globalisation which advocates of ESG should draw lessons from. The proliferation of ESG resembles many aspects of the public mindset during the expansion of global markets following the cold war.
Amid the advancement in ESG data and regulations, however, the discourse of ESG and/or sustainability-related topics have largely been confined within the circle of finance industry, national and transnational governments and elite research institutes. This increasingly technocratic way to govern such grand societal transition may risk narrowing the civic project and marginalising other social groups, in particular those likely to be negatively affected.
Our pursuit of a more sustainable future should also cultivate solidarity or deepen the bond of citizenship to prevent an impoverished public discourse. For those who are unduly neglected in public discourse, what passes for the debate on sustainable development these days consists either of narrow, managerial, technocratic talk which inspires no one; or else shouting matches in which partisan talk past one another, without really listening. They may also rightly sense that the absence of inclusive public debate does not mean that no policies are being decided, it simply means they are decided elsewhere, out of their view – by government technocrats, regulatory agencies, financial institutions and scientists.
As seen in the populist movements against globalisation, it is this overreliance on the technocratic elements that could contribute most directly to politicised and hence polarised view of ESG in the future.
