Don’t call it a “comeback”… please. If you’ve been around sustainability, CSR and ESG long enough, you remember the days of what I call “garbage economics” – claims of outsized business value of company sustainability/ESG initiatives using bad/weak assumptions, misinterpretations of data or flat out misinformation (I touched on this last week). Practitioners inappropriately inflated the ROI on program expenses and economically justified their existence. The thing is, executives are smart and saw through it all pretty quickly, resulting in a widespread (and decades-long) mistrust of sustainability professionals and their attempts at quantifying business value.
On a positive note, garbage economics in sustainability/ESG seemed to have faded away recently. Not entirely, but quite a bit – and I have been encouraged by that change. Unfortunately, it still persists in some areas according to London Business School Professor of Finance and widely-respected ESG academic Alex Edmans. Concerning BlackRock’s widely referenced study, ‘Lifting Financial Performance By Investing in Women‘, earlier this month he penned
“… a review to help readers understand what they can take away from the study. Unfortunately, the answer is: almost nothing. The study makes fundamental errors, such as using dubious measures of financial performance (and switching between them, perhaps cherry-picking the ones that work), using dubious measures of gender diversity (and switching between them), and omitting basic controls.”
He then goes on to detail his critique of the study’s methodology, data, inferences and conclusions, ending with his view that there is:
“… danger in taking research at face value, particularly if it claims a conclusion we want to be true and our confirmation bias is at play. Newspapers should not write about a study without scrutinising it first (or asking the opinion of experts in research), otherwise they spread misinformation. I previously wrote a simple guide that readers can use to discern whether a study is reliable before writing about it or sharing it.”
There is much truth to his concerns and they extend to practitioners and advisors. It can be challenging to make time to thoroughly read and give careful consideration to ESG reports, studies and articles, but it is important. At the very least, ask an experienced and trusted ESG advisor about information you are interested in to make sure it are worth relying on. We also review, vet and critique ESG publications for our readers and members. Let’s not go back to the time of garbage.
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