Is there too much emphasis on the “E” in ESG?

28 August 2023

Authored by: John Pipon, Investment Advisor & ISESG Ambassador.

Environment, Social and Governance (ESG) has been at the centre of both government and corporate decision making in the past decade however is the growing emphasis on the environment having an unintended consequence on wide parts of society.

There is undeniable evidence indicating significant impacts on the environment as a result of the Earth getting hotter, it is difficult to form a comprehensive argument against this; however, what is the solution: renewable power, electric cars, reduced meat consumption? All of these solutions are effective ways in reducing CO2 emissions, however are they adversely impacting on society in other ways?

The focus on renewable power and transitioning away from fossil fuels has been a key political initiative in recent years, however one of the consequences for European economies of this was the reliance on Russia to meet its energy needs when the sun doesn’t shine or the wind doesn’t blow. As a result, little consideration was given to the social consequences of buying energy from an antagonistic nation until it was too late, and in 2022 this risk was crystallised.

Electric cars make sense when the car is made in a sustainable way, but there is an argument to suggest this is not the case at present. In 2021 Volvo released figures that electric vehicle production produces nearly 70% more greenhouse gas emissions than a petrol car and it would take up to 9 years to offset the higher production emissions. What’s also often overlooked with electric cars is the high quantities of rare-earth metals required to make the batteries, the mining of such has devastated large parts of South America turning lush pastureland into barren wastelands, destroying habitats for both wildlife and people.

Reducing meat consumption in theory will reduce CO2 emissions by reducing not only the areas of forests and land used to farm the livestock, but also to grow the food required by the livestock. This is all well and good but there is an argument to suggest that what matters more is where the food comes from, not what the food is. Local farmers would highlight that by buying locally sourced food, there is less fuel involved in the transportation of the food and there are other social benefits by supporting the local economy.

It’s therefore important to ensure that when taking ESG factors into consideration in decision making, the entire ESG framework is reflected on and not to be distracted by a single strand of this important subject.