Since its shift from margin to mainstream over the last decade, environmental, social, and governance (ESG) investing has acquired a new cause—ESG plus. This idea argues for expanding ESG principles by adding more letters to the acronym. What is less clear is which letters these should be and how investors, companies and, regulators should prioritize them.
Drawing Up the Blueprint for Expansion
Voices from across the world of ESG have proposed new letters to cover a variety of areas of focus.
T for Technology
“There is no time to waste to add a ‘T’ for technology—making ESGT—to include the vast and growing array of technology and digital issues, risks, and opportunities,” says Dr. Andrea Bonime-Blanc, founder and CEO of ESG strategist GEC Risk Advisory.
She points to risks such as the rise of cyberattacks by individuals, organizations, and nation-states in the wake of the COVID-19 pandemic, plus a significant digital divide among communities, stifling progress. On the positive side, a vast array of digital and technological innovations has accelerated the development of COVID vaccines. “Witness also the work of the UN in interconnecting the Sustainable Development Goals with data and digital initiatives,” she adds.
D for Diversity
For Jean Case, chairman of the National Geographic Society and CEO of the Case Impact Network and Case Foundation, the priority is diversity. “I can’t tell you the number of times I’ve looked at an investment opportunity that has a strong ESG score . . . yet falls short when I look into the diversity of its leadership team,” she explains in Forbes. Although diversity currently sits within the umbrella of the existing “S” category, it coexists with a range of other issues such as data protection and health and safety.
F for Financials
According to EY, the missing letter is “F”. EY makes their case in a recent report: “There needs to be a stronger connection between the “F” of financials and ESG — “FESG” — otherwise the true costs and opportunities of business aren’t properly measured.”
The report argues that by putting financials at the heart of an ESG strategy, companies can promote sustainability goals more effectively and holistically and appeal to investors, employees, and consumers.
H for Health
Patricia Geli, a research scientist at the Harvard T.H. Chan School of Public Health, and Michelle Williams, dean of the faculty at the school, suggest attaching health to the current ESG movement’s paradigm.
“We must make protecting and promoting health every bit as essential as environmental, social, and governance principles,” they argue in Forbes. For instance, according to research from their institution, building managers could dramatically improve indoor ventilation rates for less than $40 per person in any climate zone in the United States. The improved air quality could boost productivity to the equivalent of $6,500 per employee per year.
Establishing Expansion amid Ongoing Concerns
As the ESG plus proponents continue to debate, the movement as a whole faces challenges such as buy-in from boards. These obstacles join concerns within ESG, including transparent, standardized reporting. There is also a danger that the ESG plus movement could create an alphabet soup of letters that becomes confusing or even contradictory.
Regardless, the discussion shows the responsive and adaptable nature of ESG initiatives. The ongoing endeavor to prioritize potential new components within ESG plus offers a peek into possible future frameworks for socially responsible efforts.