The term ESG was first defined in 2004 in a report by the United Nations. Since then it has become a core component of investment decision making and has given a much wider audience a literacy and general understanding of climate conscious choices and their associated benefits and risks. Unfortunately it has also often been conflated or co-opted to infer deeper and more meaningful sustainability, using what is essentially a simple investment categorisation to celebrate ‘achievements’ where no material reduction in impacts may have occurred or been measured.

At the same time, the myriad ways available to record, label and classify funds have further clouded the picture of what ‘good’ looks like. It‘s therefore unsurprising to hear the concerns about ESG amongst the investment community, as underlying performance comes under increased scrutiny alongside emerging taxonomies and Financial Conduct Authority guidelines.

Such guidelines can prompt different approaches; if your aim is solely one of compliance then by ticking the boxes this can be achieved. The alternative is to target design, development and decisions that truly benefit communities and local economies, while minimising environmental impact. Much more can be achieved through this approach, securing a wider range of benefits than if compliance is the principal driver.

Historically, we have always seen true sustainability as built on the three pillars of environmental, social and economic factors, with the view that if any one of those three pillars is too short or too tall then the whole piece will not stand up. This is the core thinking that has endured since before sustainability became a mainstream topic.

ESG represents another of these passing terms and though it has brought many benefits, we need to evolve from tick box exercises to give way to data-driven appraisal and decision making. The subsequent restructuring of property funds that will be required should translate into an actual decarbonisation of building stock, through the implementation of projects to make a material change and reduce emissions.

Another acronym will soon take its place, as we tend to lean on labels otherwise these concepts remain ethereal and the message doesn’t permeate, but the tail has been wagging the dog for too long. I’m not suggesting we discard the G and rebrand as ESE (environmental, social, economics). Indeed, I would go so far as to say that governance will have the biggest lasting impact and material change through the proliferation of transparent and robust reporting. If anything governance may well be what rings the death knell for ESG as a catch-all term, as it makes transparent the genuine performance of proposed E and S strategies.

There will always be a place for sustainability certifications and badges, indeed they are crucial to communicating sustainable performance and allowing comparisons to be made, but these should be a by-product or celebration of an outcome-focused approach to what we buy, build or sell. Choosing between labels or acronyms at this point is very much fiddling while Rome burns, or more likely floods, or both.

It is time to thank ESG for everything it has achieved, usher it quietly off the stage and focus on true sustainability, with whichever three letters you’d like to use to represent it.

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Contact Chris Cummings

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