‘The rise and fall of ESG’

Substantial progress has been made through the adoption of environmental and social governance principles

Letters to the Editor. Illustration: Paul Scott

Sir, – I am writing in response to the article “From noble ambition to corporate tokenism: the rise and fall of ESG” (Eoin Burke-Kennedy, Business, Analysis, May 26th) discussing the perceived shortcomings and inconsistencies in environmental, social and governance (ESG) ratings, as well as the broader critique of the ESG concept.

I acknowledge the challenges highlighted in the article, including the apparent discrepancies in ESG scores and the complexities involved in assessing environmental, social, and governance factors holistically. These concerns are important and merit serious consideration.

However, it is crucial to recognise the substantial progress that has been made through the adoption of ESG principles. ESG ratings, while not perfect, offer a comprehensive framework that encourages companies to look beyond short-term financial gains and consider their broader impact on society and the environment. This multidimensional approach is essential for driving meaningful change in corporate behaviour.

The examples used in the article illustrate the need for a nuanced understanding of ESG scores.

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While one company may excel environmentally, it may face significant challenges in social and governance areas, which impact its overall rating. Conversely, companies with controversial environmental records may perform well in other aspects of ESG, reflecting a balanced evaluation of their practices.

Additionally, recent European legislative developments in corporate sustainability disclosure and reporting, such as the corporate sustainability reporting directive and the sustainable finance disclosure regulation, are poised to address many of the challenges outlined in the article.

These regulations enhance transparency, standardisation, and accountability in ESG reporting, making it more difficult for companies to game the system.

By mandating comprehensive and consistent disclosures, and including rigorous audit requirements, these legislative measures ensure more accurate and reliable ESG assessments.

Instead of killing off the concept of ESG, we should seek to promote transparency, accountability, and continuous improvement in ESG practices. By addressing the concerns raised and enhancing the reliability of ESG ratings, supported by robust legislative frameworks, we can drive greater corporate responsibility and contribute to a more sustainable and equitable world. – Yours, etc,

NESSA WHELAN,

Country Manager, Ireland

UN Global Compact,

Dublin.