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ESG: Just a passing trend unless regulatory bodies get it right the first time

Some of the biggest names in investment and asset management, may be praised for bringing ESG investing from the idealistic shadows to the global economic stage. However, the real ESG transformation that intends to base economic development in the values of sustainability, social responsibility and fairness shouldn’t be led by the same corporations that have fueled the traditional ‘growth at all costs’ economy, but regulatory bodies that oversee a sustainable economic development in the future.

Given that the present economic crisis has affected companies of all dimensions across sector, these institutions are now in charge of financing the recovery of all these businesses. Therefore, it is the time for them to put their money where their mouth is, by prioritizing and facilitating financing for companies with an intrinsic added value of sustainability and social responsibility. At a national level, a specific taxation policy for ESG-driven companies would make a huge difference in terms of promoting competition in sustainable terms as well as attracting the right type of business that tackle the specific ESG needs of a country.

As most countries have been repeatedly encouraged to promote the 2030 Agenda for Sustainable Growth, the most pragmatic way for governments to go about this would be the creation of certifications to identify public interest enterprises. That would not only make the benefit system for these companies much easier, but it would help the public to identify which products are implicitly good for the public. Also, a common supranational standard and definition including ESG development goals among the conditions of access to funding would have a wider impact, since the same countries that face the toughest challenges in ESG are the most reliant on these institutions.

For any program that intends to promote sustainable and socially conscious enterprises, transparency in terms of business practices and climate footprint need to be compulsory for companies to have access to those advantages. However, to allow the necessary level of scrutiny, data reporting in terms of ESG needs to be much more detailed and reliable. This would require the use of advanced tech and skilled professionals in environment, social and governance policies. AI tools may have the potential to track  each company’s position on some of the controversial ESG issues without them properly disclosing that data, but a dedicated regulatory framework would be needed to implement this effectively.