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The fundamental problem with ESG? Conflicting letters

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Abstract

The term ESG – short for environmental, social, and governance – is routinely used to capture organizations’ efforts to be more climate friendly and socially inclusive and to employ sound governance practices and processes. Although ESG criteria are well-meaning, the term lumps together concepts that are profoundly different on at least three dimensions: (1) the excludability of the benefits of an action, (2) the temporal gap between investment and the realization of its returns, and (3) the uncertainty surrounding any given action’s outcome. In addition to these differences, E frequently goes head-to-head with S (both within and across countries). We propose a path forward, on the way investigating the solutions that businesses can explore in order to build a more sustainable future.

Suggested Citation

  • Cabolis, Christos & Lavanchy, Maude & Schmedders, Karl, 2023. "The fundamental problem with ESG? Conflicting letters," Journal of Financial Transformation, Capco Institute, vol. 57, pages 110-117.
    • Handle: RePEc:ris:jofitr:1696
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    File URL: https://www.capco.com/Capco-Institute/Journal-57-Crisis-Management
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    Keywords

    ESG; excludability; just transition; tragedy of the commons; tragedy of the horizon; uncertainty;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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