Sustainability Rankings: Goodness Companies Can Buy
Until 2030, the United Nations for Sustainable Development Goals will be the new mantra established for global empowerment and corporate and state altruism. These 17 goals and 169 targets that range from poverty eradication and sanitation to gender equality, infrastructure and renewable energy are the successors of the UN Millennium Development Goals, whose maturity ended on a not-so-successful note in 2015.
Now, the new sustainability measure offers another ‘new perspective’ for companies on how they can transform their mandate into good corporate citizens into a growth opportunity. In other words, how they can help their bottom line and their bottom line. The new kid on the business-development-sustainable-profit generation block is the ESG ranking or Environment, social and governance, a stock market tool. In essence, ESG ratings, rankings, products and services are old wine in a new bottle, to help companies capitalize on their prosocial initiatives.
Genesis of sustainable development:
Besides the gradual erosion of indigenous culture and identity, colonialism strongly opposed commercial appropriation through exploration and exploitation. The comparative advantage was reduced to absolute advantage when the empires took possession of the colonies and control their trades through monopolies on cotton, tea, sugar and slaves. This set back growth in the colonies by a century, even after the departure of the imperialists. For example, one of the main drivers of the slave trade was the production of sugar, known as white gold for the windfall profits generated by the slave trade.
At the turn of the early 19th century, statistical offices spread across Europe, collecting, tabulating and setting prices. As Foucault argues, statistics have enabled technocrats to define a ‘population’, thus shifting the model of government from the family to the State.
When countries became independent in the 1950s through freedom movements, it was time to put the development agenda back on the table. In 1972, the historical The declaration of the United Nations Conference on the Human Environment was adopted in Stockholm and incorporated the term “sustainable development” for the first time in an international conference. The Rio Declaration was adopted at the 1992 United Nations Conference on Environment and Development, which strengthened environmental governance while ensuring that countries conduct environmental impact assessments (EIAs) as a policy . It also encouraged public participation in natural resource management and incorporated laws regarding liability and compensation for victims of pollution and other environmental damage. To achieve this mandate, countries would be class on their performance on these and other deliverables.
Regulatory Capitalism and the Metrics Ecosystem:
Countries needed capital as they began to chart their new development path. The World Bank and the International Monetary Fund have come to the rescue by providing long-term loans conditionalities. Classification into developed, developing and least developed countries has become the hallmark of global divisions. A circular argument was then propagated: it began by saying that the transparency and accountability of borrowing countries should be tested before they obtain capital inflows, which they should be taught about. civilization of financial markets so that they can gain the confidence of foreign investors and thus have access to constantly expanding lines of credit. “Compliance” and “ease of doing business” have become overarching indicators, seen as essential to pull emerging economies out of recession and encourage privatization.
This form of regulatory capitalism has led to the rapid proliferation of indicators, ratings, rankings, indexes, rankings, scorecards and social labels to ‘assess and monitor’ regulatory goals and push countries to adopt what the we call international market discipline and surveillance. This practice of sorting, naming, numbering, comparing, listing and calculating is now an annual activity carried out by agencies, organizations and watchdogs that have created a culture of comparison and continuous hierarchy between countries.
Some important “regulatory rankings” include the Access to Nutrition Index, the Access to Diagnostics Index, the Responsible Mining Index, the Access to Seeds Index, the Transparency Index of Aid, Carbon Disclosure Project, Corporate Human Rights Benchmark, Global Benchmarking Alliance, and Access to Medicine Index. . Such rankings lists now shape the global outlook on who to do business, based on calculated “results”.
Rankings have the power to change perceptions about a brand, change consumer behavior, and create renewed loyalty. They have this power that it is a classification by country, Region or the world. It is a characteristic of the neoliberal order that a certain “score” can define both presence and status, like caste and class. Rankings are the market’s version of social stratification. While deserved has been labeled as an elite construct, the rankings continue to expand their scope.
For example, consider the last vaccination rankings that penalize states that may simply not have the capacity to manage mass immunization programs by depriving them of priority over the best performing states. Likewise, the Fifteenth Finance Committee has arbitrarily determined a new way of assess state performance when deciding to use 2011 census demographics instead of 1971 population counts to determine state shares in the central pool. Changing the base year taxed southern states fiscally, as between 1971 and 2011 their population declined as they successfully implemented central family planning initiatives, while northern states lagged behind. .
Of ranking of academic institutions at policy planning indices, India continues to assess and report state performance through various indicators, from Swachha Bharat rankings to corruption indices and ease of doing business. This transforms “cooperative” federalism into competitive federalism, a more market-oriented framework. India Inc also takes advantage of rankings, CSR at Human resource management.
Greenwashing and ESG ratings:
What companies do after the profits are generated is now known as CSR [Corporate Social Responsibility] and what companies did, before generating profits, to “green their business strategies” is now presented as sustainability management. How did these rankings affect sustainability benchmarks? While companies were supposed to do no harm to stakeholders in the course of their business relationships, CSR has generated social impact in action knowledge for better memorization and visibility. Essentially, funds earmarked for the “marketing budget” in a company to improve brand reputation and goodwill can now be cashed out through their “prosocial” conduct without actually using any funds.
Ethical stock trading emerged when good corporate governance was touted as an ESG product. Green investment has become the new normal. According to the National Stock Exchange ESG NIFTY100 index, “The investment strategy based on environment, social and governance has gained popularity among investors around the world. The underlying motivation for ESG thematic investing lies in generating superior risk-adjusted returns. from socially responsible, environmentally friendly and ethical companies.Any major ESG controversy will not be taken into account for selection in the index … Companies engaged in the tobacco and alcohol trade , controversial weapons and gaming operations will be excluded. ‘
In short, linking responsibility and profitability to ESG investment in sale the ethical action of companies as a safety product wealth creation. ESG variables are complex and change by industry, and there is no one-size-fits-all approach. It prevents a universal ESG framework, or for that matter, a robust audit covering all areas such as modern day slavery (child labor, forced labor), human rights (wages and safety in the workplace) and sustainable procurement in supply chains.
Prima facie, this serves as a signal to companies that intend to go public to focus on non-financial information. But are asset managers and fund houses interested in sustainable performance and ethical investor portfolios? According to a Harvard business school study, the vast majority of investors are motivated by financial rather than ethical reasons when using ESG data. ESG information is important for the performance of investments. However, the information that may be important varies from country to country (in some countries water pollution is a more serious problem than corruption); industry (an industry heavily affected by climate change versus an industry affected by human rights violations in the supply chain); business strategy (companies that follow a differentiation from a low price strategy) and so on.
Another study by HEC Paris complements these findings by examining Dow Jones Sustainability Index (DJSI) in which the addition, maintenance or removal of a company from the DJSI had little impact on its stock price and trading volumes compared to other companies in the same industry with profitability similar. In addition, continuing on the DJSI attracts more attention from financial analysts and leads to the writing of more reports on these companies. It also leads to an increase in the percentage of shares held by long-term investors.
So the bottom line: ESG ratings and sustainability indices are repackaged “corporate benefit” products in a purchasable form. Rankings can affect not only the market, but our lives, changing our perceptions of what is ethical and what is not.
The author is an assistant professor at St Joseph’s College of Law, Bangalore. Opinions are personal.