It is important to locate environmental, social and governance (ESG) goals and net-zero targets in the context of corporate citizenship. There will be some who will say that corporate citizenship is a misnomer, as the inherent interest of corporations is to get away with making as much profits as possible.
Corporations are not entirely free agents, although they can be powerful. Corporations are governed by the political and social contexts of the countries where they operate. In some parts of the world – where there are weak governments, a low level of unionisation and a lack of environmental and human rights activism – corporations can act as they please.
Trade and financial liberalisation from the 1970s onwards expanded the footprint of large corporations – although they may be domiciled in their country of origin, they seek to escape national supervision and control. With the advent of financial deregulation, corporations sought to exist above national laws – in the transnational ether, so to speak.
Countervailing forces and measures are necessary for taming corporations’ rogue instincts.
Recent media exposés bring into sharp relief the conflict between corporations’ stated ESG goals and what they actually do in real life. One of the exposés, published in the UK’s Guardian newspaper, detailed how Uber, the ride-hailing company, encouraged violence between Uber drivers and the taxi industry and described how determined the company was to use ‘dark arts’ to achieve market domination and profits. Uber, as the Guardian revealed, was aided and abetted by people in powerful positions.
Uber engaged in this kind of behaviour in contravention of its code of conduct and despite what is enshrined in its own ESG report: “Uber does not buy market access, business, or policy outcomes with money, gifts, or other perks.”
The is not the first time that this sort of thing has been revealed to have been done by large and publicly listed corporations, and it certainly won’t be the last. This repeat playbook – look angelic but do otherwise – betrays all attempts by society to gift corporations the licence to operate in the hope that they will self-regulate their own behaviour. ESG goals, similar to net-zero goals, can be instrumentalised as part of a public relations exercise.
The idea that greed is good was encouraged by the libertarian economist, Milton Friedman. If anything, Friedman was all for corporations running the world, while governments stepped back.
Friedman and a group of thinkers from the Mount Pellerin Society provided the intellectual canvas entitling corporations to the same ‘individualisation’ of rights as political citizens (the rights and privileges conferred on the citizens of a given democratic society) and the protection afforded by the Constitution.
It is with this in mind that those who are suspicious of voluntary measures such as ESG and, lately, net-zero goals are wanting pledges not to be used as corporate greenwash.
United Nations (UN) secretary-general António Guterres has established a high-level expert group (HLEG) on net-zero emissions. The HLEG has its work cut out for them. The group has to balance voluntary measures against regulatory requirements. The Europeans seem to be moving more in the direction of mandatory measures. Germany, for instance, has a mandatory law requiring corporations to report on the sourcing of their inputs and state whether these sources involved human rights violations. The European Commission is also looking to adopt something similar across the Euro bloc.
ESG is meant to be a tool of transparency and a way to enhance corporate accountability beyond the realm of financial accountability – sometimes referred to as double materiality: accounting for financial risk that can impinge on the financial bottom line of firms and corporate behaviour covering social- and rights-based issues.
ESG principles became de novo in 2006, when the UN put out a report, ‘Principles for Responsible Investing’, following the publication, two years earlier, of its White Paper, titled ‘Who Cares Wins’. Since then, it has gained momentum in the financial sector and shaped the nature of corporate reporting and how ESG is measured and reported on within corporate governance structures.
The Global Reporting Initiative, which was established in 1997, later adopted the ESG framework (around 2009) to broaden the base of accountability measures. There are numerous other frameworks, especially on climate issues, that complement or enhance ESG accountability and transparency measures.
By 2019, ESG had been adopted by over 2 500 corporations with assets under management worth a total of $80-trillion. Over time, ESG objectives and targets converged with the UN’s Sustainable Development Goals (SDGs), as issues related to governance, the environment and society are effectively covered by all the 17 SDG goals. Today, we have a new convergence arena: net zero.
Net-zero corporate targets build on the work of the Taskforce on Climate-Related Financial Disclosures (TCFD), established in 2015 to mainstream climate issues in the financial sector and the allocation of future capital.
The TCFD is meant to highlight short- and long-term climate-related financial risks and liabilities, including transition risks associated with the phasing out of fossil fuels. The TFCD was established in 2015, with Michael Bloomberg as its chairperson, in an effort to further consider climate issues in the global financial system. As of February 2020, over 1 000 public and private companies with $138.8-trillion worth of assets under management had demonstrated their support.
Net-zero goals apply to countries, cities and corporations. An umbrella coalition has been established under the Race to Zero campaign, which was launched before COP 26. At COP 26, a coalition of financial institutions and investors, formed the Glasgow Financial Alliance for Net Zero, which is led by Mark Carney, former governor of the UK’s central bank.
Net-zero goals can be seen as a new stretch target complementing ESG provisions, with climate issues taking increased prominence. Net-zero goals signal that significant structural shifts are on the horizon, given the pressure to reduce global emissions. The challenge that governments and citizens face is balancing economic wellbeing with climate goals. These are not mutually exclusive, but corporations can delay the process if ESG with net zero is a way to kick the can down the road and delay the transition process.