The Ethics of ESG: Redefining the Parameters
Wednesday, October 26, 2022, 9:05 AM - 9:45 AM

ESG often has a rather 'narrow' ethical focus, for example by excluding certain sectors or industries and focusing on metrics that are easy to measure. We also take it as a given that we know which sectors and industries should be excluded. However, these issues are far from settled. For example, the defence industry is viewed differently after Russia's invasion of Ukraine. Nothing intrinsic to the defence industry has changed, but the perceived ethical merits of it have. While it is always permissible to change one's mind, blanket exclusions prior to the invasion of Ukraine resulted from poor ethical thinking, particularly about possible future scenarios. Similarly, recent research shows that pursuing ESG strategies leads investors to underweight emerging markets, with consequent implications for development and poverty alleviation. If investors are to invest ethically, there is a need to practice ethical thinking, and for more rigorous thought about what it means to be ethical. It is relatively simple to attempt to maximise ESG ratings, but doing this avoids the hard questions about ethical investing - such as how environmental benefits should be balanced against social harms? Are there any conditions under which investing in unethical sectors is ethical? The ESG framework, as it stands, is not necessarily the right one to answer such questions, nor are different investors likely to agree.