Over the past week, OM has been diving deep into how some of the main contributors of climate change manage to find ways around regulations to continue receiving massive profits at the ultimate expense of the environment. Today we’ll be wrapping this little investigation up, and we’re going to draw some conclusions on how we can proceed while making stronger efforts to clean up our act using one of the most powerful tools at our disposal: government regulation.
WHAT’S BEEN ESTABLISHED?
In part 2 of our Government Oversight series, we discovered that ESG ratings across various companies seem to be rather subjective. This winds up creating a series of sweeping differences in the analytical rigor these ratings systems use to determine varying companies’ actual environmental output. In other words, some companies are held to a very high standard, while others are not. Timothy Doyle at investors.com (Aug. 9, 2018) has noted that various ESG rating systems are often “fraught with problems, from inconsistent metrics, to ratings which continually fail to account for different regulatory regimes across distinct geographies”. Doyle later comments in his article how ESG rating agencies often “use the same fixed scoring criteria for companies in different countries, despite the fact that they are subject to varying regulatory and disclosure regimes”. As one example, Doyle later remarks how Tesla was outperformed on ESG ratings by Volkwagen, despite BMW AG, Volkswagen AG, Audi AG, Porsche AG, Daimler AG and their U.S. affiliates being criminally accused of “sharing commercially sensitive information and reaching illegal agreements about vehicle attributes including technology, costs, suppliers and emissions equipment” (Chiem, Law360, May 18, 2018). Doyle also remarks how “more often than not agencies assign ratings to companies based on industry, without actually factoring in company-specific risks. The utilities sector, for example, has been given the highest mean ESG score by Sustainalytics, while healthcare has been assigned the worst” (Aug. 9, 2018).
THE HEART OF THE ISSUE
This inconsistency is at the heart of the government oversight issue that this project has focussed on. By allowing for a business environment of sporadic and inconsistent testing, governmental organizations have given larger, more powerful organizations a leg up in their own efforts to maintain a high profit margin at the expense of the environment. This creates a conflict of interests that is directly in favor of maintaining corporate profits at the ultimate expense of global environmental sustainability efforts. These ESG rating systems must then be improved.
HOW CAN WE FIX THIS?
To improve these ESG rating systems, we need to ensure that the testing methodology is audited for consistency across various corporate and governmental sectors to ensure that these rating systems accurately reflect how these various organizations have succeeded or failed in their attempts to meet the standards put into place by government officials. The onus then falls to governments to ensure that legislation they create accurately enforces beneficial change in arguably every business and government sector that has historically had a major deleterious impact on the environment.
We need to make sure that the government is doing its job to make sure that large companies are not getting away with shirking their responsibilities concerning environmental protection. And this problem is hardly limited to any one country. ESG ratings have serious repercussions on how both businesses and governments operate, and those operations directly affect how each business or government affects the environment at large. By calling for changes in how ESG ratings are collected and analyzed, we can push for greater action towards protecting our environment and securing a sustainable planet for future generations.
TAKE ACTION
For Canadian readers, you can make your voice heard by contacting the government of Canada’s Commitments Board by adding your input to the Federal Sustainable Development Strategy by following the above link. Readers of other nations are strongly urged to take similar efforts in their own countries by voicing their concern towards monied interests manipulating testing data for their own interests at the expense of our world.