Why ESG is a big problem

A blog post by always possible CEO, Richard Freeman.

Socially responsible investing is gaining momentum, especially around Environmental, Social, and Governance (ESG) metrics as a measure of sustainability and ethical compliance.

But a recent FT article has dropped a bombshell: there is almost no difference overall in levels of carbon intensity between companies with good #ESG scores and those without. A firm with a high ESG score can still be a significant polluter.

So, what’s the point?

The cited research – conducted by Scientific Beta, an index provider and consultancy – examined ESG scores from Moody’s Investors ServiceMSCI Inc., and Refinitiv, an LSEG business. the study revealed that companies with high ESG scores pollute just as much as their low-rated counterparts. Even when the focus was solely on environmental ratings, the correlation between ESG scores and carbon intensity was close to zero.

Further, it seems that adding ESG scores as a partial determinant significantly diminishes the reduction in carbon intensity achieved if this area is really focusing on.

In some cases, portfolios that blend social or governance ratings with carbon intensity ended up being MORE polluting than people not bothering with ESG at all.


1. ESG is about compliance and risk – not about proactive change

ESG scores encompass a broad range of material factors, making it difficult to draw direct correlations to specific objectives like reducing carbon emissions. ESG assessments are meant to gauge a company’s resilience to environmental, societal, and governance risks rather than to measure their direct impact on climate change.

2. ESG encompasses too many things as equal

The research highlights the trade-offs that investors need to navigate when making sustainable investment decisions. Different investors may prioritise different aspects of sustainability, such as carbon reduction or a high ESG rating. When emerging considerations, like biodiversity, enter the ESG equation, it becomes almost impossible to strike a balance between various sustainability objectives – and to know exactly what is it that the business stands for.

3. Focusing, maintaining and developing

Holistic continuous improvement is obviously ace. But is that what is happening? Often no – and ESG scores are masking barely adequate improvement across the board. It is actually useful to focus and go deep on the thing you want to be famous for. And for investors genuinely interested in reducing the carbon intensity of their portfolios, the key lies in focusing solely on carbon intensity. Otherwise, they risk diluting the positive impact they seek to achieve.

An ESG focus is better than no focus. Absolutely.


Moving from being compliance-led, to truly changing up the impact your business has is where the real investment gold is.

Do what is expected, or lead from the front?
Engineer the system, or change the system?
It’s always a choice.

A photograph of The Fuse at Ten report book

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