The Staggering Gap Between ESG Investing and Reality
Last Sunday, we celebrated World Environment Day. Sustainability and sustainable finance have been around for a great many years, with the early efforts of pioneer pension funds recognising the opportunity to impact the wider social environment in the 1950s. While we were positively taken aback by the pouring awareness during the last couple of days, we'd like to call attention to a few facts and figures regarding the current state of affairs.
Despite the overwhelming scientific evidence, like the IPCC reports, clearly indicating that we are nearing a doomsday scenario, and in spite of the fact that the vast majority of businesses, investors, and governments claim to be committed to sustainability, we are not seeing enough progress in the world’s decarbonization efforts.
For example - according to Statista, only 7 of the 193 countries that signed the Paris Agreement in 2015 are now on track to reach their decarbonisation targets. Banks alone spent $742 billion on fossil fuels last year, while oil and gas companies like Shell continue to be ranked as sustainability leaders by the world's leading ESG Rating agencies, such as Sustainalytics.
On the other hand, at least on paper, there is a lot of buzz about ESG efforts being on the rise in the financial sector. According to the ESG Global Study of Capital Group, 89 percent of investors claim to have adopted ESG practices, suggesting they are investing in sustainable causes.
So, how is it possible that there is such a serious gap between ESG claims and reality? The Capital Group's Global ESG Study from this year sheds some light on this debate. The three key challenges in investors' ESG approaches, according to them, are the inconsistency of ESG ratings, the inconsistency of ESG data, and measuring ESG performance. To rephrase these findings, we could say that while investors state to make significant investments in companies that claim to be sustainable.
On the other hand, the lack of consistent ESG data and standards makes it difficult, if not impossible, to determine whether the money is being invested in causes that directly support decarbonisation or other sustainability efforts at all. This extends beyond the environmental aspect of ESG — according to the report, social issues are being overlooked even more - by as much as 40% of investors.
We at KnowESG want to change the conversation and bring clarity to a space overflowing with contradictory sustainability data, ratings, and resources. We think that knowledge is power, that's why we are creating a unique sustainability platform and have just released a free ESG Rating module which combines the three main ESG indexes of major listed companies.
We strive to make sustainability resources and information available to everyone on the planet so that we can all work together to make the sustainability transition a reality. Stay tuned to knowesg.com or our social media for updates on the release of our upcoming modules and ESG resources.
Source: KnowESG
