Posted: 27 May 2022 by starindexadmin

acronym of ESG contradicting by definition

Is the acronym of ESG bundling together a set of contradicting objectives by its very definition?

The term ESG is fast becoming a popular buzzword in the global movement towards a sustainable future. But is the acronym of ESG bundling together a set of contradicting objectives by its very definition? As it happens, environmental, social and governance measures are not mutually exclusive.

Progressive environmental measures could directly impact social welfare in a negative way. Where do companies find the balance? How do businesses decide where to prioritise their efforts? And on what basis will they be scored by the financial institutions that are using ESG as means to decide where to invest and by the same token; divest those crucial funds?

The world’s largest asset management company: Blackrock outlined its investment mission statement via Larry Fink’s 2022 letter to CEOs:

“As stewards of our clients’ capital, we ask businesses to demonstrate how they’re going to deliver on their responsibility to shareholders, including through sound environmental, social, and governance practices and policies”

The question is: can you actually have “sound practices” across all three categories?


If we look at things from an environmental perspective, divestment away from carbon-heavy business practice should be high on the agenda. After all, the world understands that the fuel industry makes the largest contribution of carbon into the atmosphere.

However a significant reduction in fossil fuel production would have massively negative social impacts. People across the world rely on fossil fuels to: heat their homes, cook their food and travel to work. A reduction in supply serves only to shift the price for fuel even higher than it already is.

The complexity and counterproductivity of the environmental conundrum continues even further…

For example, vehicle manufacturer Tesla made a move to offer higher volumes of fully electric vehicles (as a greener alternative to petrol and diesel engines) with the building of its German Gigafactory in Europe. And yet construction was held up by environmental protests over an endangered sand lizard habitat on site. Biodiversity as it would appear, also falls into the “E” within ESG.

In fact, Tesla has actually been dropped from the S&P 500 ESG Index lineup. This action prompted the following tweet from Tesla CEO Elon Musk:

“ESG is a scam. It has been weaponized by fony social justice warriors,”



The social impact is perhaps the most sensitive aspect of ESG. It takes into consideration: human rights, modern slavery, child labour, worker pay, employee relations and working conditions.

Western businesses have commonly practised outsourcing to suppliers in developing countries. The benefits largely come down to reducing the production costs of their goods and services.

Fast fashion brands have regularly used offshore suppliers to reap the benefits of: high volume manufacturing, low cost raw materials and cheaper labour. This allows them to offer the consumer a vastly reduced price point (after all the other margins have been worked in).

Sweatshop workers in Bangladesh can be paid as little as 3 US cents per hour. The cost of labour for a $60 shirt is roughly 10 US cents per shirt. Working conditions can be extremely poor with 100+ hours a week spent working in the extreme heat. Also, 250 million children between ages 5 to 14 were found working in sweatshops for an average working day of around 16 hours.

But if clothing manufacturing equates to 80% of Bangladesh’s exports and 40% of its industrial workforce, what would happen if these fashion brands sourced locally instead of using these offshore suppliers?

Many of the lower/underpaid workers would lose their income entirely. The child workers may be depending on these incomes to support families and parents that are unable to work. So while the social impact of these companies could be considered exploitative, they’re offering labour opportunities in areas of deprivation that might not have been there before.

Executive pay, board diversity, tax strategy, bribery and corruption are some of the challenges within the “G” of governance in ESG. In many ways, this serves to grey the areas of ESG even further.

BigTech is an interesting case in this respect. Tech companies in general have been a favourable option in regards to ESG-based investment. Their products and services tend to use relatively less natural resources and they can promote a greener image than say, the fuel industry or agriculture.

And yet on closer inspection, Bigtech giants such as Amazon, Google and Facebook come under fire for their tax strategies and board diversity. Amazon reported a sales income of 44 billion euros in 2020 by doing its corporate filings in Luxembourg; thus avoiding a higher tax bill for its European operation.

Facebook and Google have structured their companies in such a way that allows them to retain a majority of board voting rights. Google’s founders would actually retain their board superiority even if they sold all their stock. Mark Zuckerberg owns a little over a quarter of Facebook’s stock but controls 60% of the shareholder votes.

This all sounds good in theory, but where do you start?

How do companies even begin this perilous journey towards sustainability?

The STAR Index method is delivered without replacing current systems and processes. Capitalising on and strengthening existing information that ensures actionable insights are delivered at speed. And STAR Index generates regular progress scorecards to keep your business and supply chain on the right track.

In addition to this, we can also provide you with first hand assistance and consultation. The STAR Index Strategic Partner Programme helps you to find an ESG and sustainability expert that can support your business in achieving its STAR Goals.

Talk to us today

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