ESG Data is Like Less Wife Beating
By: B. Lorraine Smith
Tags: Regeneration, Sustainability, Esg Investing, Sustainable Development, Esg

[This article originally appeared on the blog on July 8, 2019]

Imagine a friend telling us a story about his mother. She called him up to say:

“I’ve got some great news! I counted up how many times your dad beat me this year compared to last year. It’s more than 10% less than last year! And he’s committed to even less next year.”

What do you think our friend might have said in response?

Probably not, “Wow, that’s great news, mom!” He knows that wife beating is not okay — especially not his mother. A 10% reduction — heck even a 90% reduction — is unacceptable.

Also, it’s unacceptable if his dad beats his mom less than their neighbor’s husband beats his wife. Both are behaving unacceptably — our friend’s dad is not a leader in “less-wife-beating”.

The only acceptable trajectory in terms of domestic abuse is a complete end to it, including protection for victims to avoid further harm, and steps for all to heal.

We know what is and isn’t acceptable

I have come to see the use of environmental, social and governance (aka ESG) data as a form of less wife beating, where the wife in question is everyone’s mother, Earth. This is awkward because I have spent the last decade and a half contributing to the ESG machine, hoping it was helpful.

Why have I concluded this? Because as a relatively blunt instrument ESG data today only indicates harm reduction. It is not designed to adequately (or even partially, in most cases) illustrate regenerative practices. Yet without this essential piece, we’re congratulating companies for leadership in less wife beating.

This is repulsive language, I know. It might be making you cringe. You might be thinking judgey thoughts about me instead of internalizing what I’m saying.

Why don’t we cringe when companies beat our Earth repeatedly, if a little less than last year? Not only do we not cringe, we celebrate the mainstreaming of ESG data that reveals how much less of a beating is going on.

I can anticipate — and hear quite regularly — the pushback on this. “It’s going to be a transition. It’s going to take time.”

I used to take that as a reasonable answer but now I think it’s part of the problem, akin to our friend responding, “You know mom, some wife beating is okay”. Even the Sustainable Development Goals (SDGs) feel like part of the problem based on the way most companies use them. There is an abundance of content in reports (including those I’ve helped create) about how companies contribute to these goals. Yet there is little to explain why the goals need to be articulated in the first place.

SDG reporting is like our friend saying, “She told me my dad’s been doing more around the house to show how sorry he is. I think he really loves her and didn’t mean to hurt her.” We know where that’s headed. It’s not the future anyone wants.

Even leading ESG initiatives suffer from the same mindset failure

There are many facets to the ESG universe. It’s a burgeoning — in some cases quite profitable — space. However it’s akin to making money building shelters for abused spouses. It is arguably better than no shelters at all, but it is definitely not ending the abuse.

For example, the growing success of green bonds is cited as a piece of evidence in our march towards mainstreaming sustainable business, with over $167 billion in such bonds issued in 2018 with the US and China leading the way. Sounds like capital is flowing in the right direction, right? I don’t think so. Though the proceeds of those bonds are likely being put to better uses than some alternatives, when I look closely at the standards used by third-parties who review these issuances, it’s worrying. The approach is about potential (not always certain) emissions reduction and/or mitigation of impacts; it’s not about regenerating ecosystems, net-sequestering CO2, nor any of the recognized characteristics of regenerative business.

We also have the CDP, formerly the Carbon Disclosure Project, which describes itself as “the most comprehensive collection of self-reported environmental data in the world”. Thousands of companies disclose data using CDP questionnaires (some of which I have helped with), and a growing number of investors reference this data (some of whom I have guided to CDP disclosures). Yet again the data is skewed towards harm reductions and thorough management practices. You would have to be an expert between-the-lines reader to discern regenerative practices from this data since the relevant questions are simply not asked. Instead, you’re pushed to see leadership first among those who are sharing the most information, and second among those who have indicated a reduction compared to their past selves and/or their peers.

On climate data specifically — one of the most frequently referenced data sets within the ESG universe and where the CDP focused from the start — almost all data is focused on emissions reductions. There is little information to indicate if a company sequesters any CO2, much less if it achieves net-sequestration or has plans to shift that way. Yet we know that without that shift, we are on track for climate-caused catastrophe as the beatings will be beyond what our Earth can withstand in a way that still includes us.

Biodiversity is another theme where the data distracts from the urgently needed shift. There are ESG indicators to show if a company is considering biodiversity. But digging deeper into the frameworks there is a blur of regulatory and ecosystem services data points, along with numerous ways to describe harm reduction. These are important pieces but they do not allow an investor to determine if the company’s value is being created by restoring biodiversity, which is what’s needed. At best, the indicators show consideration for the concept that biodiversity matters, and that there is evidence of an internal bureaucracy to consider the matter further. It’s like producing a report on the importance of importance — such reporting lacks, well, importance.

Meanwhile we have more than enough evidence to illustrate how higher ESG scores routinely go to companies who are degrading our Mother Earth and us humans along with her, both acutely and chronically. It’s bad enough to look at the ESG rating of a company with glaring lapses in common sense. For example mining company Vale experienced a dam rupture in January 2019 in Brazil’s state of Minas Gerais (where there are still 24 people missing and 246 bodies recovered so far, and countless animals, plants, and other elements of the community devastated) and yet it currently earns an ESG rating of 65% according to CSR Hub, an ESG data aggregator. This rating places Vale in the second highest rating category in their framework. The slower-paced disasters unfolding courtesy of the oil majors earn even better rankings, such as Exxon Mobil at 75% and Total Petrochemicals at 93%. British American Tobacco, whose business model is predicated on death-accelerating addiction, falls in the middle with a rosy 84%. We could play this game all day with ESG rankings. It’s disturbing. It needs to stop.

This happens because a lot of ESG data only illustrates how transparent a company is, not how well it is performing. Using these rankings as a bellwether of progress is like our friend’s mom saying she’s leaving dad for a new, better suitor, chosen because he tweets more consistently about his beating habits.

There will be no “transition” until the switch flicks

It may look as though I’m throwing myself and my friends under the bus here. After all, I’ve been part of this machine for some time. I co-authored a paper on the value of transparency for a leading sustainability consultancy. I have willingly declared into more than one microphone that I think integrated reporting is the meaning of life. I sometimes guide reporting and disclosure projects for large companies. I’ve kept my lights on and bought myself more than a few pairs of new running shoes with the proceeds of these efforts.

In my defense, if you’ve hung around me (including during some of the above-mentioned activities…), you’ve probably heard me say much of this before and perhaps just thought I was tending a bit grumpy. I’m not throwing anyone under the bus, though. Rather I’m noticing we’re already under it, thinking we’re retooling it from below while moving at top speed. So I’m telling the truth: it’s not working.

If I were more patient I would suggest that, since there are many people doing deep and practical thinking on an economy designed to serve life, we should all go and pay closer attention to what they’re writing, speaking and teaching about. Many are people I am lucky enough to collaborate with — in fact it’s through this work I’ve arrived at this conclusion.

For example, I applaud John Elkington’s article recalling the Triple Bottom Line, followed by the Volans team launching an inquiry into Tomorrow’s Capitalism. I collaborate on this team with an open mind. I am honoured to contribute perspective to the Future-Fit Business Benchmark, recognizing their “break even” versus “positive pursuit” goals that get at the regenerative piece in a tactical way. I love reading Christine McDougall’s daily meditations on regeneration. I have been delighted to see Kate Raworth’s 2017 Doughnut Economics get so much press and discussion, bringing to life concepts such as what Marjorie Kelly described in her 2001 book The Divine Right of Capital, while also providing a diagram connected to a popular treat (mmm… doughnut…) sprinkling on a couple more decades’ worth of evidence to hammer the economic realities home. And Otto Scharmer and the Presencing Institute’s Theory U and the need for the “system to see itself” have deeply informed me. Not to mention, the Indigenous friends and collaborators I’ve met through this work are way ahead in their understanding of what is needed as most of us play a few centuries of catch-up.

But I am coming to realize that all the insight in the world is wasted if we believe the idea that ESG data contributes to the solution without being honest about the problem. Before we go any further we have to voice the truth: it’s unacceptable for a business to create financial value while degrading ecosystems. If the business is not treating Earth as the source of all life which makes business possible, and if they can’t demonstrate how they are doing this, they are either missing the chance to set an example (highly unlikely, but possible) or they are undermining the conditions that create life. They are beating our Mother.

The transition will not happen when more investors claim to pay attention to ESG data. That data is too tightly hinged to the “But he said he’ll change…” abusive mindset that got us into this mess. I’m open to being proven wrong here — please let me know one widely-used ESG data point that indicates an end to the beating (an “I kicked him out for good…”) versus a lessening of it (a “he’s beating me less…”). If I knew of it, I would gladly suggest people reference it.

We already have everything we need

The transition, should it occur, will be in openly — and with humility, courage and perhaps some shame and regret — naming the truth. It will be bumpy. There will be big financial questions to resolve. And a host of logistical, cultural and emotional leaps to be navigated. But as many who have resolved to end an abusive relationship will tell you, the choice is obvious once it’s made. And not making the choice means the abuse continues, no matter what the abuser says. We currently run the risk of dear Earth leaving us all. I’d like to think instead we’ll kick the abuser out.

Happily we’re not starting from scratch — we already have everything we need by way of collective knowledge about how to function as a thriving society. But ESG data is not picking up on this information yet, and it is definitely not sending the abuser packing.

If the community of regenerative practice were as mainstreamed as we claim ESG investor activity is, the equivalent would be like our friend’s mom calling him up to say how well she’s feeling, and how much fun she and her husband are having in their community garden this season. Because of course she’s not being beaten. And neither are any of the neighbors.

That would indeed be great news.