Q: Supply chain issues expose loopholes in measuring ESG risks

QUARTZ reports:

If you own stocks, chances are good you have heard the term ESG. It stands for environmental, social, and governance, and it’s a way to laud corporate leaders who take sustainability—including climate change—and social responsibility seriously, and punish those who do not.

In less than two decades since a United Nations report drew attention to the concept, ESG investing has evolved into a $35 trillion industry. Money managers overseeing one-third of total US assets under management said they used ESG criteria in 2020, and by 2025 global assets managed in portfolios labeled “ESG” are expected to reach $53 trillion.

These investments have gained momentum in part because they cater to investors’ growing desire to have a positive impact on society. By quantifying a company’s actions and outcomes on environmental, social, and governance issues, ESG measures offer investors a way to make informed trading decisions.

However, investors’ trust in ESG funds may be misplaced. As scholars in the field of supply chain management and sustainable operations, we see a major flaw in how rating agencies, such as Bloomberg, MSCI, and Sustainalytics, are measuring companies’ ESG risk: the performance of their supply chains….

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