The transition towards greener economy has always been associated with environmental, social and governance (ESG). The trend has gained further momentum as the investing community have shown their commitment to invest based on the ESG principle. In particular, the institutional investors have increasingly pledged their allegiance to this new way of doing business. As of 30 September 2023, there are 5,337 signatories of Principle for Responsible Investment (PRI) of which 734 are asset owners with total assets worth USD121.3 trillion. Most are located in the United States (US); United Kingdom (UK) and Ireland; France; and Germany and Austria with total signatories of 1,064, 846, 408 and 337.
Meanwhile, the number of signatories in China, Japan and Rest of Asia stands at 139, 125 and 266 respectively. In that sense, the ESG principles have been well embedded among the western countries.
A global race
Interestingly, the amount of greenhouse gas (GHG) emission in the US had peaked in 2001 at 7188.2 million tonne and has progressively been on a declining trend to 5,615.6 million tonne in 2020 before it picked up again to 6,017.4 million tonne in 2022. Similarly, the GHG emission in the UK had dropped from 872 million tonne in 1970 to 426.6 million tonne in 2022. In the same vein, Germany and France have demonstrated a steady decline in GHG emission from 1,322.1 million tonne and 637.7 million tonne in 1970 to 784.0 million tonne and 430.4 million tonne respectively in 2022. Meanwhile, the situation in Asia was completely the opposite. The GHG emission for China and India has accelerated from 2,142.6 million tonne and 817.9 million tonne in 1970 to 15,684.6 million tonne and 3,943.3 million tonne in 2022. Similar trajectory was also observed in Indonesia, Vietnam, Cambodia, Thailand, Malaysia, Philippines and Singapore.
Obviously, the developed countries have the head start in the global race for lower GHG emissions. While the intention towards a greener world is noble, there is always pockets of concern that is worth mentioning. To some degree, it felt like a déjà vu when the prevailing ESG euphoria seems to resonate well with the Washington Consensus in 1989. It was a term that was associated with level of agreement with the International Monetary Fund (IMF), World Bank and US Department of Treasury for reforming the global economy as a result of the collapse of communism back then. There are 10 economic reforms agenda which includes fiscal discipline, subsidies rationalisation, tax reform, competitive exchange rate, privatisation of state enterprises, trade liberalisation and deregulation among others.
A renowned economist Joseph Stiglitz who is the former World Bank chief economist has shared his critics in his book Globalization and its Discontent on how globalisation move was carried out in the 1990’s. It has led to the macroeconomic imbalances among the developing economies as there were not enough time for the capacity building to occur and the implementation of the reforms were deemed reckless. The Asia Financial Crisis in 1997-98 was one of the main highlights as many Asian countries were experiencing an overheating economy as a result of the rapid expansion in investment.
A balancing act
In a grand scheme of things, a move towards embracing the ESG has to be wholesome. At the current juncture, there has been excessive focus on “E” while “S” and “G” seems not to be getting an equal treatment. Not to mention that lower GHG trajectory among the developed countries would give them the upper hand in a bid to move towards sustainable environment. It will put the developing economies at a disadvantage position as their production activities continue to emit higher GHG. It appears global capital owners may not keen to invest in this economy if they are not in compliance with the ESG requirement. This might accentuate the degree of economic inequality between the developed and developing countries. Also, some might see this as a form of protectionist policy as developing countries are being constrained by the set of rules which they are not ready to comply.
As such, it begs the question on how much weight one should assigned for each letter of the ESG. This can be quite theoretical question which will require an empirical study to determine the right weight for each letter. Also, having an independent organisation to rate and score the ESG is a must have ingredient in order to improve the ESG credibility. At the end of the day, it's about achieving a living standard that covers all areas. An environment that is clean where everyone could breath a fresh air that can last for many generations. A harmonious society that can earned a decent income which can support their family and along the way, can help others via philanthropy activities. Good governance would ensure everyone are on its toes when it comes to assuming any responsibilities. If it plays out well, then ESG will be a key catalyst to a civilised world.
