An Analysis of ESG, its Benefits and Criticisms
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Posted On: 03/07/2025 5:26:08 PM
An Analysis of ESG, its Benefits and Criticisms
Environmental, Social and Governance (ESG) criteria have become very popular in recent years as investors and stakeholders emphasize the importance of ethical business practices and sustainability.
Bodies like the European Commission have even introduced ESG regulations focused on sustainability, like the Corporate Sustainability Reporting Directive, which mandates that large companies disclose detailed ESG data for better transparency and accountability.
This has seen many companies begin measuring and reporting their ESG performances to demonstrate their commitment to responsible business practices, with strong performances enhancing a firm’s reputation and making it more attractive to investors.
These developments come as investors, particularly institutional and socially responsible investors, continue to consider ESG factors more in their investment decisions. Environmental factors like how to mitigate climate change are a primary focus for many investors, which has seen firms adopt renewable energy sources and work towards reducing their carbon footprints.
Social issues like diversity initiatives, improved working conditions and pay equity are also considered by investors, with data showing that in 2021, shareholder proposals on these issues rose by 37%.
While ESG’s influence continues to grow, so do its criticisms.
So, why does ESG face criticism?
Some argue that ESG ratings lack consistency, with data showing that small firms struggle to compete with larger companies that have the resources to invest in ESG initiatives. Others have also argued that ESG sidetracks firms from their main objectives, with skeptics claiming that it steers companies away from profit-making ventures to less lucrative initiatives.
Additionally, some critics claim that ESG is a marketing ploy focused on building a company’s reputation rather than creating meaningful change.
Greenwashing is a major concern, with some companies exaggerating or falsely claiming ESG compliance to attract investors. This has sown doubt among investors and raised concerns about the long-term value of sustainability initiatives.
Despite its criticisms, ESG is still expected to play an even bigger role in investment decisions as regulatory frameworks evolve and stakeholder demands for transparency increase. Recent surveys have shown that nearly 100% and 82% of asset managers in Europe and the United States respectively, incorporate ESG metrics into their investment strategies.
Over the long term, these criteria also help alleviate risks.
Companies that actively address social and environmental factors have demonstrated more resilience during crises. This is further demonstrated by firms with high ESG rates reporting steady profit growth with low volatility during tough economic times.
While ESG adoption is beneficial, companies must strike a balance between sustainability goals and financial priorities, recognizing that no investment decision will satisfy everyone. Entities like First Tellurium Corp. (CSE: FTEL) (OTCQB: FSTTF) have to find their own way to balance all these interests so that investors see actual value arising from the implementation of ESG practices.
NOTE TO INVESTORS: The latest news and updates relating to First Tellurium Corp. (CSE: FTEL) (OTCQB: FSTTF) are available in the company’s newsroom at https://ibn.fm/FSTTF
Please see full terms of use and disclaimers on the ESGWireNews website applicable to all content provided by ESG, wherever published or re-published: https://www.ESGWireNews.com/Disclaimer
Environmental, Social and Governance (ESG) criteria have become very popular in recent years as investors and stakeholders emphasize the importance of ethical business practices and sustainability.
Bodies like the European Commission have even introduced ESG regulations focused on sustainability, like the Corporate Sustainability Reporting Directive, which mandates that large companies disclose detailed ESG data for better transparency and accountability.
This has seen many companies begin measuring and reporting their ESG performances to demonstrate their commitment to responsible business practices, with strong performances enhancing a firm’s reputation and making it more attractive to investors.
These developments come as investors, particularly institutional and socially responsible investors, continue to consider ESG factors more in their investment decisions. Environmental factors like how to mitigate climate change are a primary focus for many investors, which has seen firms adopt renewable energy sources and work towards reducing their carbon footprints.
Social issues like diversity initiatives, improved working conditions and pay equity are also considered by investors, with data showing that in 2021, shareholder proposals on these issues rose by 37%.
While ESG’s influence continues to grow, so do its criticisms.
So, why does ESG face criticism?
Some argue that ESG ratings lack consistency, with data showing that small firms struggle to compete with larger companies that have the resources to invest in ESG initiatives. Others have also argued that ESG sidetracks firms from their main objectives, with skeptics claiming that it steers companies away from profit-making ventures to less lucrative initiatives.
Additionally, some critics claim that ESG is a marketing ploy focused on building a company’s reputation rather than creating meaningful change.
Greenwashing is a major concern, with some companies exaggerating or falsely claiming ESG compliance to attract investors. This has sown doubt among investors and raised concerns about the long-term value of sustainability initiatives.
Despite its criticisms, ESG is still expected to play an even bigger role in investment decisions as regulatory frameworks evolve and stakeholder demands for transparency increase. Recent surveys have shown that nearly 100% and 82% of asset managers in Europe and the United States respectively, incorporate ESG metrics into their investment strategies.
Over the long term, these criteria also help alleviate risks.
Companies that actively address social and environmental factors have demonstrated more resilience during crises. This is further demonstrated by firms with high ESG rates reporting steady profit growth with low volatility during tough economic times.
While ESG adoption is beneficial, companies must strike a balance between sustainability goals and financial priorities, recognizing that no investment decision will satisfy everyone. Entities like First Tellurium Corp. (CSE: FTEL) (OTCQB: FSTTF) have to find their own way to balance all these interests so that investors see actual value arising from the implementation of ESG practices.
NOTE TO INVESTORS: The latest news and updates relating to First Tellurium Corp. (CSE: FTEL) (OTCQB: FSTTF) are available in the company’s newsroom at https://ibn.fm/FSTTF
Please see full terms of use and disclaimers on the ESGWireNews website applicable to all content provided by ESG, wherever published or re-published: https://www.ESGWireNews.com/Disclaimer
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