High Scores Of Big Oil Firms Tied To Russia Show How ESG Melds Seamlessly With Greenwashing
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Putin’s attack even prompted Ukraine’s former finance minister, Natalie Jaresko, to criticize ESG. She wrote in a March 3 column for the Financial Times that the Kremlin’s war raises questions for companies that have “vociferously professed the virtues of environmental, social and governance factors.” This is “a moment of truth” for ESG, she said. By her read, the phenomenon of greenwashing has now morphed into “ESG-washing.” “All too frequently, corporations and their executives engage in marketing or obfuscation of what they’re actually doing—what could more accurately be called ‘ESG-washing,’” Jaresko wrote. “Will this prove to be another case of looking the other way?” She called on companies to end their ties to Putin’s regime.
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Professors Elizabeth Demers, Jurian Hendrikse, Philip Joos and Baruch Lev (who recently retired from New York University’s Stern School of Business) pulled together a study questioning why companies were able to retain their high ESG scores after investing so heavily in Russia, a country long plagued by corruption. Among their conclusions was that there is no statistical association between companies’ ESG scores and their response to the Russian invasion.
“If you’re an investor who has been picking stocks based on ESG scores under the assumption that your money is likely to be funding more socially responsible corporate behavior, particularly in periods of extreme crisis such as Russia’s invasion of a sovereign country, you should be very disappointed,” the professors wrote, adding to the chorus of doubters about the usefulness of ESG ratings. They went on to say that Jaresko is fully justified for calling out companies for “not walking the talk of socially responsible corporate behavior. Our evidence suggests that Russian-invested European firms that have higher overall ESG scores, and even those with higher ‘social’ scores, aren’t more likely to take meaningful action in response to Russia’s invasion of the Ukraine.”
So where does that leave ESG? It’s not clear that all this skepticism is having any impact as money keeps pouring into the sector. Last week, ESG-focused ETFs attracted $1.8 billion, the most since early February, even as the S&P 500 index dropped about 3%. Proponents of ESG say that skeptics don’t understand how ESG is used in the investing process. It’s not about doing good with your money, per se: They contend it’s essentially a tool to help measure a company’s resilience to financially material ESG-related risks. MSCI Inc., the leading provider of ESG scores, says on its website that the ratings aren’t “a general measure of corporate ‘goodness.’”
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https://www.bloomberg.com/news/articles/2022-03-16/greenwashing-is-increasingly-making-esg-investing-moot-green-insight