Climate in a Bullshit World

Context: ESG (environmental, social and governance) commitments are useful to show intention, but unfortunately, they have not translated into action.

The relevance of ESG commitments in contemporary times:

• Indicates better Financial Performance: Firms committed to ESG benefits are doing better financially, compared to those that are not.
• Rising climate and environment-related commitments: In 2015, under Paris Agreement, 195 countries committed to climate action and agreed on voluntarily reduction of their emissions.
• Global Potential: The Asian Development Bank (ADB) estimates that the ESG market has a global potential of about $23 trillion.

Issues with ESG commitments:

• Indifference to the truth: leading to conflict of interest.
  • Most ESG companies verify their own investments and measure only the dollar investments they are making (not necessarily report greenhouse gas reduction).
  • Difference between commitments and action: According to the London School of Economics, ESG companies have significantly more environmental violations than those that are not ESG.
    • They spend more time and money on lobbying politicians for subsidies.
  • Insincerity and self-delusion: The delusion is perpetuated by the governments since countries that have committed to Paris are also the largest subsidizers of fossil fuels.
  • Inadequate growth measurement: Gross Domestic Product (GDP) doesn’t price things that matter most to us, including environment, clean air and clean water.

Way Forward:

• Dismiss Gross Domestic Product (GDP) as a measure of well-being: Countries like Finland, Iceland and New Zealand should pioneer this.
• Start collecting good data: so that independent third-party verifiers for e.g. civil society, can monitor the implementation, verified with a regulatory authority and building governance mechanism.
  • There must be externally set standards that examine greenhouse gas emissions over the life cycle of the technology that also considers spill-overs and feedback loops.
• Creating a ‘choice architecture’: Incentives, and taxes, along with social norms for transparency and credibility, is critical.