Sustainable Industry

ESG: these three letters are just the beginning

By Aron Belinky, researcher and professor at the Getúlio Vargas Foundation*


This was breaking news in the Financial Times on 05/31/2022: police raided the headquarters of DWS, the largest asset manager in Germany. As many as 50 police officers raided the company’s premises in Frankfurt and, on top of that, raided Deutsche Bank, its largest controller, in the building next door. The reason? To investigate allegations of greenwashing or, in other words, false claims about the ESG attributes of the financial products it offered to investors. This is undoubtedly an extreme case, but it illustrates the emerging tensions from the rise of this now famous acronym.

As you know, the term ESG stands for “Environmental, Social and Governance”. It was coined in 2004, but it didn’t really become famous until 2020, when business and finance heavyweights (such as asset manager BlackRock and the World Economic Forum) began to make it clear that they would also use these criteria in their analysis, in addition to its usual financial metrics. There’s now every indication that they have finally convinced themselves of what researchers and environmentalists have been saying all along: the agendas of the environment, social stability and business ethics are really about business. They reveal risks, threats and opportunities not captured by other perspectives that are more focused on the economy and output.

In a typical example of demand driving supply, investor’s interest led to the rapid emergence of financial products with an “ESG seal”. The problem, however, is that it is just an acronym – not a concept. It states the individual ingredients – attributes E, S and G – but says nothing about the quantity or quality of each. A handful of minor environmental precautions will not make a traditional business “green,” just as ten fingers will not necessarily make you a piano player. By selling the former and delivering the latter, managers and entrepreneurs ruin their reputation, provoke the ire of customers and prompt the market sheriffs to action, and could lead to situations like that of DWS. More than that – they create skepticism and insecurity, causing great damage to the business world, which really NEEDS reliable instruments to ascertain its situation and plan for the future.

The good news is that these are temporary mishaps: natural disruptions of these early stages we are going through. After decades of warnings, it finally sank into market agents that they cannot continue in blind flight, without good instruments to guide them in a business environment that is profoundly different from that of the 20th century. The ingredients are now stated in the fashionable acronym: what will come now is the hard work of combining them in consistent, reliable and effective ways. Due to the diversity of situations and the complexity of the issues involved, it is certain that there will not be a single standard, a silver bullet solution that will apply in all circumstances. It is also certain, however, that the ingredients are already given, and that the advantage will be on the side of whoever best masters them.


*Leading partner of ABC Associados. Researcher and consultant specializing in sustainability, corporate social responsibility and responsible consumption. Since 2014 he has been the technical lead for the B3 Corporate Sustainability Index (ISE B3), and has also been involved in other projects related to the management and assessment of companies from the perspective of sustainable development. He also works on
responsible consumption and impact businesses and investments. He holds a PhD and a Master’s degree from EAESP/FGV, where he first obtained a degree in Public Administration, and a degree in Geography from FFLCH/USP. Researcher and visiting professor at EAESP/FGV and other institutions.