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ESG: Trying to Regain Balance

Sustainability had previously never been such a flaming topic. Now, in the nick of time, ESG Investments have been in the spotlight during the last years and world leaders are trying to take drastic measures for greener future, as it was seen in the recent COP26 Summit. In COP26, investments like transportation, green energy, sustainable homes and cities, and green technology were discussed, which will, ultimately, lead to an ESG-powered future. Environmental, Social and Governance (ESG) are three pillars that came to replace Corporate Social Responsibility (CSR), in an attempt to introduce firms to a more socially impactful and holistic environment. Even though ESG has been around since the early 1960’s, it once was a socially responsible investment, which now has transformed into impactful investments with laws and regulations structuring, and directing, these impacts.

Environmental crisis has been knocking on our door for decades, but, unfortunately, humanity has the tendency not to feel threatened unless danger knocks down our door. We see politics trying to take big steps towards sustainability with the Paris Agreement, in 2016, in which 192 states, along with the EU have signed, in order to target climate change and global warming by 2020. In addition, we see the Green New Deal, established in 2019, addressing the financial crisis as an attempt to target social economic stability. However, since the Paris Agreement deadline was not met, world leaders took part in the Glasgow Climate Conference – COP26 – which was seen as the final call for environmental change. Decisions have to be made, but most importantly, actions have to be taken for environmental change to be seen.

Hence, during COP26, global calls for an end of inefficient fossil-fuel subsidies and minimization of unabated coal were signed, along with cutting carbon emissions with the creation of a global regulated carbon market – a regulation that was on deadlock since 2019. These actions are the leading forces that will bring the world closer to reaching the 2030 goal of dropping the world temperature by 1.5°C. However, not everyone left the summit satisfied, since developing countries and countries greatly affected by climate change were once again left on discussion terms. Their needs and demands for green energy sources were not met by the leaders, and the private investment firms are the ones left with providing potential ESG funds and advocate for their sustainable, and livable, future.

The term ‘sustainability’ holds a larger and heavier value than what it has been attributed with. Sustainability, just as ESG, are values a person, a group, or, a company acquires and follows through every step. For example, the ‘Social’ perspective in ESG has been questioned a lot in the last two years, due to the pandemic. Time stopped, and along with it underdeveloped, or developing countries, came face to face with bare necessities shortage, such as food, water, and clothing. People had lost their jobs, income had dropped to a minimum amount, with households being left with no electricity – electricity produced by fuel that is. Moreover, the migration crisis brought millions of people in need of asylum. According to the UN Refugee Agency, more than 6 million Afghans have been forced to abandon their homes in the last 40 years and seek shelter in countries like Pakistan and India, hoping that their displacement will be temporary. Refugee camps, more often than not, are barely meeting the living conditions and refugee children remain uneducated since they are not seen as legal citizens with the right to public education. Hence, funds ought to be investing in social development to improve local communities and inclusivity, along with making alternative energies more accessible to everyone. Moreover, a firm is socially aware based on whom they choose to co-operate with. For example, going local and supporting small businesses is considered to be more ‘Social’ – compared to falling into the abyss of over-consumerism and divestment - among the support of organizations and groups that advocate for human rights.

In addition, Geert Hofstede, a social psychologist, in his cultural dimensions theory, defines power distance as the cultural phenomenon of high and low power relation tolerance; a definition that can also be applied in governance. A firm is ESG-friendly based on how it is being managed, how transparent it is, and its governance factors. It relates to the power distance that exists, not only between the employer and the employee, but also between the Board of Directors and the Stakeholder’s rights. ESG promotes governance for better outcomes, since it leads the company into a more cohesive, equal, and opportunistic environment. Materiality, risk management, and procedures are being structured with diversity as its ethical value and, according to ESG, this is now the best performing investment a company can make for itself – a system that BAO advocates for.

More and more firms are seen taking actions that relate to their greener future in terms of carbon footprint, benchmarking, waste productions and management, and funds chosen to build or invest into. However, on the one hand, it is seen that, through this ‘trend’, a wave of “greenwashing” has taken over the Environmental aspect of ESG. Some firms are using ESG related terms in their nomenclature in order to promote themselves as sustainable, or even taking it as far as investing in projects that are related to, or under the radar rely on, environmental threads. This action is promoting greenwashing behavior and it capitalizes on the growing demand for sustainability. On the other hand, a notable mention is how companies often forget that ESG comes from the structure and policy of a firm, and it is not a characteristic that it can be assigned through ESG funds and investments. Thus, it is often argued that ESG has a problematic nature since it can be easily manipulated, with firms choosing to focus solely on the environmental pillar and omit - to a great degree - the other two, in order to be promoted as progressive. It should not be forgotten, though, that progressive does not equal ESG.

In BAO, we see our company as a mini society itself, which constantly grows as a community and is built from individuals with different backgrounds and knowledge, all co-existing in a balanced manner. We believe and promote the equal importance of all ESG pillars and do our best to stay consistent with responsible investing. There was a point in the market during which sustainable investing was different from socially responsible investing, but we see sustainability as a social agent in which we invest our trust and time in. Stakeholders and Shareholders are always up-to-the-date. Investments and funds are always considered from a greener point of view – limiting the impact on deforestation and fossil fuel. Additionally, we are proud of having no discrimination in our team and, strongly, supporting feminism and equality. We invest in the full potential of ESG as the social agent that will brighten up our future, not only as a company, but, on a greater scale, as a part of society too.

December 9th 2021



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