ESG Principles Need to Apply to Countries First
As Russia has made clear, well-meaning corporate policies are irrelevant if a nation has little regard for the environment, its citizens or the rule of law.
It makes little sense to focus on companies’ ESG policies and ignore those of their government.
Photographer: Mikhail Klimentyev/AFP/Getty Images
Environmental, social and governance investors believe they can lower the risk of a portfolio and maybe even boost its return by investing in companies with robust ESG policies. The idea is that companies that take ESG seriously are better stewards of the environment, are less likely to be in the path of climate change, take better care of workers, suppliers and customers and are better managed. Those attributes keep them out of trouble and help them realize their full potential, all to the benefit of shareholders. (ESG is not to be confused with socially responsible investing, or SRI, which tries to align money and values.)
But if ESG is a crucial part of companies’ success, then the ESG-related policies of their home governments should be just as important. After all, governments have more influence than anyone over many of the issues ESG cares about, including environmental and climate policy, the health and education of their people and the rules governing companies’ rights and responsibilities. If government has little regard for the environment, its citizens or the rule of law, then the ESG policies of companies within its borders may not be much help to investors.