ESG ratings or disclosure data is the symptom of the phenomenon rather than the actual drive towards net zero or climate adaptation. Disclosure frameworks shape ESG culture as it is a compliance risk as it veers towards legal risk. Anything legal drives change on the ground. Is it the change which the climate intellectual class want, the answer is a like negative as businesses will treat ESG as compliance, and that will be its material implication as businesses are here to serve their customers and draw a return on investment.
ESG disclosure frameworks if considered for what they are that is as a trust building method by fostering transparency will serve the ecosystem better. ESG data are weak signals for a black swan event, anyone who has read the Bhopal Gas Tragedy case study will understand the reasons for disclosure as an early warning system.
Disclosures have their own in built set of risks, in particular green washing which can be remedied by robust reasonable assurance. A few sectors such as power and energy are under the transition heat, and will encounter the a large pivot from BAU. The treat of climate litigation to their boards will increase the magnitude of risk. The quality of data or the lack of it, including tick box yes or no answers add to the ESG risk.
The shift towards ESG disclosure itself is a big shift from voluntary CSR which is still corporate philanthropy without major systemic ripples. We have learnt from the digital wave that data is the new oil (but for whom?) and that data is culture. The convergences between digital and ESG are significant.
Change Thinker 