If you haven’t yet heard about “environmental, social, and governance,” AKA ESG, you will soon. It’s a concept that has worked its way into a lot of big companies’ policies, and it’s influencing a lot about how those companies do business.
So what is it, and how will it impact your Paychecks? It’s a bit of a long and winding road, but stick with us until the end. You’ll be glad you did.
Here are Five Fast Facts about ESG:
- ❓ What Is It? ESG is the idea that a company should have policies that focus on “environmentally and socially conscious standards.” The goal is to have policies that encourage good corporate behavior. Sounds ok so far…
- ⏳ What’s The History? ESG was created about 20 years ago by the UN and dozens of CEOs of huge financial companies. The goal was to push ESG investments into the market as a “force for good” on a mass scale. They’ve been very successful since then. For example, investments in “sustainable” funds rose from $5 billion in 2018 to over $33 billion in just the second quarter of 2022! Hm, just one question…who determines what is “good?”
- 👍 Supporters Say - Supporters say environmentally-friendly and “social justice” policies are the right thing to do and ESG policies keep companies accountable. Supporters of ESG also say it can protect investors if the company does something stupid. Okay, we’re on board for those things, too!
- 👎 Opponents Say - Opponents say that ESG policies are all about politics and control and that companies are bullied into certain decisions out of fear of retribution. Companies who don’t embrace ESG worry they’ll be declined loans or be rejected financing that they would otherwise qualify for. They also point out that ESG investments care less about profits than policies, and they gladly perform worse as a result, which is a serious no-no for corporate leaders. In some recent Congressional hearings, some state officials agreed, formally accusing ESG policies of raising prices and reducing profits, thus hurting consumers. Also, various ESG scorecards are terribly inconsistent, meaning there’s really no standard or real adherence at all. Oy, no thanks to all of the above.
- ‼️ Current Action - There’s a lot happening! On the one hand, companies are pushing forward and continuing to throw piles of money into ESG funds. On the other hand, six states have signed laws explicitly banning ESG policies to protect the citizens in their states, and more than a dozen more are working on similar laws. Setting up a fed vs state showdown? Grab the popcorn!
🔥Bottom line: So, here’s how it affects you. It sounds like a great and noble idea, but that’s not how it works in practice. If a company doesn’t toe the line of whatever scorecard it’s using, it can lose funding, financing, insurance, or any of a number of other large financial transactions it may need to survive. Obviously, this impacts everyone working for that company, which might be you! 🫵
But that’s not all. It’s not stopping at large companies, it’s coming to you in the form of your own bank. Over time, ESG scores will be applied to you by your bank, and if you’re not toeing the line of whatever scorecard your bank is using, you may be denied access to loans, financing, insurance, or other financial transactions you should be getting that you may need to survive.
We are all for taking care of the environment, being socially conscious, and demanding accountability from corporate leaders! But this is a whole different beast, one that presents a LOT of risk to our Paychecks and our very ability to live life the way we want.
What do you think about ESG?
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