ESG. PRI. SDG. Greta Thunberg and Larry Fink know those terms. Should you?
If you don’t know what ESG means, you’re not alone. The term—which stands for Environmental, Social and Governance—is the basic nonfinancial framework used by most corporations, NGOs, governments and money managers use to measure how sustainable and ethical an investment is. (Indexing giant MSCI, for example, rates more than 13,000 companies, more than 65,000 securities, and 8 million derivatives on ESG standards.)
Alphabet soup
But that’s not the only arcane acronym of the Climate Industrial Complex. Ever heard of SDGs? Sounds like a sexually transmitted disease, but SDGs are actually the UN.’s Sustainable Development Goals, 17 mission-critical objectives to eradicate poverty and hunger, achieve gender equality, and solve climate change.
And then there’s PRI, the U.N.-supported Principles for Responsible Investment. The term might sound dull, but more than 2,300 signatories—investors and institutions—from more than 60 countries have promised to follow these six principles when making investments.
Making sense of it all
The language of responsible investing is freighted with acronyms like these—as well as vague terms like “impact,” “purpose,” “socially responsible,” or “sustainable” that sound important but mean different things to different people.
One problem is that every investment firm, corporation, rating agency, NGO, government and academic institution has its own unique vocabulary—definitions, talking points, principles, and programs—to explain the “purpose” part of its global license to operate.
These lexicons are often both complex and vague, understood by the most insider-y insiders but baffling, intimidating, and even demoralizing to others who want to join the climate discussion. And because of their divergent use, the overarching institutional “voice” can lead to obfuscation, disinformation, and ultimately indecision.
Who’s wrong if everyone’s right?
Because both sides in the battle over climate change cite authoritative science to validate their positions, it’s also hard to tease out what is empirically valid and what is not. With everyone claiming science is on their side, institutions can cherry-pick issues that demonstrate they are responsible stewards. For example, any company can claim it is ESG friendly, depending on what weight it puts on a particular environmental, social, or governmental metric.
Yet only one metric really matters. The only thing growing faster than the explosion of muddled acronyms, vague definitions, and competing metrics is the rising level of CO2 in the atmosphere.
Getting the message across clearly
But there have been a few notable communication successes of late. Greta Thunberg’s “house on fire” rhetoric mobilized a generation and shamed the Davos crowd, President Trump, and the U.N. General Assembly. Departing Bank of England governor Mark Carney rattled the Basel financial elite by declaring climate change a “systemic financial risk” and demanding “comparable, reliable, and clear disclosure” for both “markets and governments.” And BlackRock CEO chief Larry Fink said in January that climate risk is “compelling investors to reassess core assumptions of modern finance.” Wow.
Climate + Capital cannot reinvent the lexicon that the world uses to talk about climate change. What we will do is play our part in simplifying and demystifying the climate change conversation. Our goal is to make even the most complex topic easier to understand.
Illustration by Wenting Li.
