Kicking good sense out of touch.
For most of us, the pursuit of profit has been the primary driver of our businesses. Recently, a new constituent has emerged in the form of environmental, social and governance considerations, ‘ESG’.
This new ‘stakeholder’ does not have profit as its primary driver. By the Treasury’s own estimate, the cost to the Exchequer of attaining net zero alone will be £1.4tr, without even considering any of the other aspects of ESG. No attempt has been made to assess the additional cost to the economy. ESG is turning business objectives on their head.
The narrative is that, over the long term, risk adjusted returns will increase for those businesses that embrace it the most. However, there is currently no analysis or empirical evidence to substantiate this belief. Nor can there be. But with the legislation being put in place mandating ESG principles we are all going to have to comply.
“To establish the good governance espoused by ESG, good governance is being set aside”
Many institutions and businesses have already hardwired ESG into their organisations, rewriting their profit-focused goals without even a nod towards shareholder consent. These are the same institutions which habitually demand protection for shareholders. To establish the good governance espoused by ESG, good governance is being set aside.
The drive to attain ESG credentials runs the risk of becoming a bureaucratic tick box exercise at the expense of shareholders. It has already created some perverse incentives which undermine its underlying principles.
