In our need to understand the world we tend to simplify everything, often to the point that we go about things wrong.
Take diet for example, we know "Pizza" is bad and "Sushi" is good, but most foods are neither good nor bad. Many "bad" dishes are helpful as part of a holistic diet, it depends on many different variables.
ESG Investing (Environmental, Social, and Governance) is about to go through one of it's toughest periods ever because the entire area is far far too complex for anyone to ever really be able to understand in it's entirety.
Is Nuclear power a "green" energy? It's very complicated, and it depends.
Are EV's "good for the planet", well it depends on how the power is generated, how the batteries are made, what happens to them when they are depleted and many more things.
Is Uber good for the planet because some people sell their cars and use shared vehicles, or bad because it's using private cars not public transport?
If a building is very very efficient to run because it's equipped with rain capture, heat pumps, passive cooling etc, but if the design work required countless more human hours to perfect it, and construction includes materials with higher embodied energy or from further afield, then is it better for the planet?
What happens when we layer in social conditions, if a Unilever brand like "Dove" is about making the world a better place by appreciating different forms of beauty, but Unilever is aiding deforestation using Palm Oil, then should we be applauding them?
If Apple is making devices that improve our lives, and an approach which helps safeguard our privacy, but have incredibly complex supply chains that may include sub contractors using child labor in Congolese mines, then it's is a "good" company?
If a company like Juul offers a safer way to consume nicotine than cigarettes, is it a company to celebrate, or do it products simply increase the number of people drawn to smoke?
We recently discovered 52% of ESG funds invest in military equipment makers like Thales or BAE, which felt outrageous, but when Ukraine required defending, such stocks suddenly seemed more beneficial to making a better planet, in many peoples eyes.
What we can be sure of is this.
- ESG will remain incredibly complex
- Millions will be made creating over simplified indexes which allow companies to show themselves to be "good" or "bad" or "better"
- ESG will only ever become a more significant talking point in the media
- We will have countless accounts of greenwashing and in more ways that you can ever imagine. The market place will become more cynical, more superficial, more outlandish, more prone to influence and complexity, and people will lose faith.
I wonder what can be done to make systems that can more accurately rank genuine "goodness" in the world. And take account of the real complexity of supply chains, prioritization of the things that matter most, and in ways that balance things like the product benefit too