ESG is taking some fire, and we think it needs a re-definition. It focuses on companies, and we think it can, and should, also focus on entire nations.
ESG has its roots in the ideas of University of Chicago sociologist James S. Coleman (1926-1995), credited as one of the first people to use the term social capital, and a key writer on the topic late in his career. ESG is often discussed in tandem with the United Nations Sustainable Development Goals (SDG), as both continue to increase their presence in corporate plans, products and services.
The operative word is corporate; ESG programs focus on a company’s commitment to responsible, progressive environmental, social, and governance processes and programs. It’s a squishy term with squishy metrics, as most terms and programs with social sciences are. Its malleability thus leads to inebitable concerns of “greenwashing” and similar criticisms.
Is ESG Deeply Flawed?
In fact, The Economist recently pronounced ESG to be “deeply flawed,” a movement that “won’t save the planet,” and one that should be boiled down solely to measuring GHG emissions. Fair enough – any time this influential, classically liberal British newspaper advocates a stricter oversight of big corporations is a good moment for the world’s people and future.
Applying ESG to Nations
But we at the Smart Nations Foundation advocate something more dramatic – why not develop a ESG index for entire nations, and not just individual companies?
I’m working on such an index as part of my work for the Smart Nations Foundation and its Climate 4.0 initiative. The ESG Index builds on my work over the past decade on the Tau Index (featured last year by Sustainable Brands), which measures relative IT development and readiness among 143 nations in the world.
The Index integrates a number of technology, economic, and societal factors to show how these nations are doing on a relative basis, that is, how well they’re doing given what we might expect. For example, everyone knows that Switzerland is wealthier than, say, the Philippines, and therefore more nominally competitive as a society and business location.
But how well does Switzerland actually perform, given its advantages? How well does it perform versus other highly developed nations? How well does each nation of the world perform, given its current situation?
The index thus identifies developing nations such as Vietnam, Costa Rica, Rwanda, and Georgia as places to consider, while also recognizing the relatively high performance of highly develped nations such as Denmark, Germany, and Japan.
An ESG Index: Our Initial Take
Now, working with my colleagues at the Smart Nations Foundation and a small group of other researchers around the world, we think it’s valid to measure each of the components of ESG as and create a measurable ESG Index, nation-by-nation.
Doing this provides a big picture that shows which countries in all regions and income levels can be expected to make good progress toward addressing climate change (which is, after all the main goal), which countries (including wealthy ones such as China and the United States) need some prodding, and which ones have serious issues that may or may not be able to be addressed effectively.
Our initial take, based on more than 100 data points for each of the 143 companies covered by the Tau Index yields no surprises: Scandinavia and Finland lead the world. Our ranking looks at each nation’s performance per-person, so a smaller nation doesn’t necessarily have an advantage over a larger nation.
The Big Five and The Top 25
That said, Germany, France, the UK, and Japan were the only three nations with populations of at least 50 million people that cracked our Top 25. Also, Germany and Japan were the only nations among the world’s top ten emissions producers that cracked our Top 25.
Among the world’s Big Five emissions producers – which emit 60% of the world’s GHG emissions each year -- China ranks 77th, the United States 32nd, India 100th, Russia 108th, and Japan 20th.
There are many more insights to be gleaned from this data, and we are continuing to refine it. But this initial take presents an accurate picture of what is happening with respect to the world’s efforts to address climate change and support the notion of ESG.