The Most Common Confusion of ESG

The world is in confusion about ESG versus Sustainable Development, particularly in Malaysia. On top, people are also confused about the UN Global Compact with the OECD, or Corporate Social Responsibility with "Social", etc. Here are four key confusions:

Confusion #1

When you ask a question: What is ESG???The answer you will always get is Environmental, Social, and governance. Hardly anyone will ask further questions: What does it mean?

To be clear, we must see that: ?ESG as the acronym should be written as "E, S, G", whereas ESG was coined by James Gifford in 2005 to specifically mean "ESG Integration".??The full definition is "Integrating ESG factors/considerations into security valuation models and in investment decision process from a risk/return perspective" (Mercer 2018).?

In 2004, Kofi Annan (secretary of the United Nations) asked major financial institutions to collaborate with the United Nations and the International Finance Corporation in identifying the ways to integrate environmental, social, and governance concerns into capital markets; as a result, James Gifford coined this mission as ESG.?

According to the originality: ESG means ESG integration - it is an investment strategy under responsible investing principles, and it is also a thinking process focusing on environmental concerns, social concerns, and governance concerns. It is believed that ESG is the way to reconcile economic development with environmental protection.?

Confusion #2

Most people talk about ESG as Sustainable Development, the truth is: Sustainable Development is not ESG, but ESG is for Sustainability. To have clarity, we need to be clear of these few keywords: Sustainability, Sustainable Development, Sustainable Finance, and ESG.

In a nutshell, "sustainability" is the ultimate goal, what everyone wants to achieve at the end.??"Sustainable Development" is the way to achieve sustainability by adopting one or more sustainable development goals from UNSDG 17 set by the United Nations as the guided focus or framework.??

"Sustainable finance" is about financing both what is already environment-friendly today (green finance) and what is transitioning to environmental-friendly performance levels over time (transition finance). Last, ESG is the investment decision process managing sustainable finance by integrating environmental factors, social factors, and governance factors into capital market. Ultimately, it means? sustainable development is about achieving sustainability through SD Goals; whereas, ESG is about achieving sustainability through managing sustainable finance.

Confusion #3

Most people seek ESG clarity from Sustainable Development Professionals, not realizing the difference between ESG as the acronym and ESG as the coined meaning. The truth is, ESG is an investment strategy applied in the financial sectors, thus for anyone who can truly and fully understand ESG, he/she must have a financial background or be an expert.??Otherwise, they will still end up understanding ESG as the acronym and as sustainable development.?

The basis for being an ESG specialist or as a profession must be gaining ESG education from a legitimate source under the United Nations because ESG was initiated by the United Nations, and coined by the person under the umbrella of the United Nations. Anyone who claims to understand ESG must also have studied the history and the originality of ESG, and stick to the true meaning, intention, purpose, and definition.

Confusion #4

A growing chorus of critics, who argue and question ESG, either from the East or from the West, however, at the end of the articles, always come with this disclaimer:?The opinions expressed in XXX are solely the views of their authors and do not necessarily reflect the opinions and beliefs of?XXX.?

This type of article is confusing because most readers do not read the disclaimer and take it seriously. About the ESG, the critics talk about the negativity they see and think, with no reference to the intention and purpose. ESG was initiated with good spirit, intention, and purpose, but carrying it out is the effort of the whole world, it's a long-term mission, a long journey of reconciling economic development and environment, it is a matter of "how".??Therefore, everyone should focus on how to make it better, how to achieve the goals, how to fix the negativity, etc.?

Anyone who talks about ESG in a negative sense should also propose and suggest solutions, not leaving the criticism hanging in the air, and creating more confusion, especially for those who have no capacity for logical thinking. They thus take criticism and opinions with no capacity to filter. The truth is, if anyone does not believe in the ESG movement, can just let go and not have any involvement with it; but fact is, those who hate the ESG movement, love the economic benefit aspect, this is the dilemma, this is the root cause of the critics.?

The classic example:??The United Nations initiated ESG, if the U.S. do not like it, they can initiate something else and don't call it ESG; why should anyone damage ESG movement? Let the United Nations continue what they have started, anyone else can initiate something else and call it something else, period.?

In confusion is, No.1, most people are not clear that: first, ESG applies in the financial sector, thus without financial background and experience, one cannot fully understand ESG, particularly from the practical aspect; second, seek clarity from the legitimate ESG professionals, because ESG is not sustainable development - be sure to?differentiate these few keywords: Sustainability, Sustainable Development, Sustainable Finance, and ESG. Last but not least, do not listen to the negative critics, do not listen to anyone who talks about problems without solutions, because they have the choice to stay out of it, or not participate in it, if they don't believe in this movement.

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