Good – or just not being bad?
Many companies today promote themselves as being good, using high ESG ratings on major index providers as evidence, when in truth they are just ‘not being bad’, and the only evidence they have to back up this claim are policies that attest to this, to the best of their knowledge, as long as you don’t look too far down the supply chain.
This is what led to the Boohoo scandal last year, where just prior to The Sunday Times expose on poor labour standards and below minimum wage compensation, the fast-fashion retailer was given an AA ESG rating by MSCI and had over 20 ESG and Ethical funds as investors.
Now I have no doubt that Boohoo probably had all the right policies in place. The problem was there was a gap between policy and practice, which is not picked up by negative screening. And because there are no consistent, and more importantly auditable standards available as to what makes a business ‘good’, companies can pretty much declare that policies exist, and unless they get caught out in the way BooHoo did on labour practices, and Volkswagen did on emissions, then having a binder full of ethical policies can pretty much guarantee you a high ESG score with many major measurement providers.
At the moment this approach values what is easy to measure, it doesn’t measure what we all value.
A ‘gold standard’ badge?
The other ESG camp that exists is one that is both incredibly worthy and rather elitist or, dare I say, cultish. Born from worthy conversations amongst the already rich and successful in Davos and at events that surround the circus that is the UN General Assembly, there are ways of getting a ‘gold standard’ badge that proves you are indeed a good company.
The problem is that to get these stamps of approval, you must spend tens of thousands of pounds, and take years collecting extremely detailed and academically focussed data. There is no doubt that this approach is highly effective at evidencing that a company is ‘good’, the problem is that it is accessible only to an elite few who were arguably already on a path to being sustainable from their outset. It is more of a form of validation for the very best (who can afford it) than an incentivised journey that is accessible to all who have the right intentions.
These badges of honour are beyond the price range and capacity of the majority of small to medium-sized enterprises, who might have the intention of being not just ‘not bad’, but to do the maximum they can within the confines of their industry and business model.
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