Wellian Weekly 13.09.2021

Should ESG have Global Standards?

I recently read an article that ESG standards should be standardised globally and this really got me thinking. Whilst I know and think a lot is being done in this manner, and we all know a lot more can be done, to create a global standard is probably impossible to achieve.

I know we all breathe the same air, and if Country X is polluting, then we all share the problem that has been created by Country X, so working for the benefit of the planet in a collective manner makes a lot of sense, if only ethical. Country X should shoulder its share of global responsibility.

“E”, “S” and “G” cover a very broad church and lots of it are massively subjective and this is where I feel the issues lie from a global standards perspective.  Of course, where things can be measured (i.e. carbon emissions) then they should and companies should disclose their numbers and I’m a big fan of this being implemented and implemented quickly - globally. Companies should be held accountable, but who is going to police this and how?

For companies to be listed on a stock exchange they have to pass certain minimum criteria relating to the production and disclosure of their report and accounts for instance, but not all stock markets have the same listing criteria – so how will these rules be incorporated globally? But, in my opinion the biggest problem will be the “absolute” versus the “relative”.  Companies operate in different jurisdictions with different legal and taxation implications – unless, once again, there is global agreement with this, then I think there will be problems. What is considered “standard” in the UK might seem like - and feel like - an alien concept in other countries. Adopting a global standard might put too much pressure on developing markets and not enough pressure on developed for instance and is that fair? From a pollution perspective, China and India are among the largest and therefore the worst, but they are also rapidly industrialising and surely bringing tens or even hundreds of millions of people out of poverty has to be seen as a good thing but in conflict. What would the cost be of working to a global standard, and might that actually delay bringing the country out of poverty?

The path to energy transition in 2050 (or 2060 in the case of China) will not be smooth. The fact that China has adopted their net zero initiative to be a decade later than the rest of the world also tells us there are issues. The fact the world’s governing bodies have allowed China the delay tells you this is no easy subject matter and needs to be treated carefully.

Not all “E”, “S” or “G” rules will translate globally because not all countries or companies are at the same stage of global development. So setting an absolute global standard seems a little unfair. As previously highlighted, politics, taxation, how report and accounts are calculated, the rule of law and so are different all over the world means there will be winners and losers. There is also the tricky subject of not only how the rules will be measured (and how failing to meet those rules will cause pain for those that miss) but also how individual governments will legislate.

E S and G is not going away. It should be embraced and fully integrated.

 

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