Working Paper
By most accounts, we are on our way to a climate catastrophe. To successfully combat climate change, clear vocabulary, structure, and measurement are essential. These must be precise and effective.
One of the common terms that has emerged in this context is ESG. Unfortunately, ESG is flawed, as it combines elements as distinct as apples and oranges. Many ratings have been proposed, the UN SDGs featuring early and prominently. However, and admittingly an understatement, the battle against climate change does not appear to be won. Neither will it be as long as we do not have convincing measurement that documents the progress, or lack thereof.
This paper presents a way to right set sustainability measurement and take the entropy, if not greenwashing, out of a multitude of current ratings. The authors' first proposal amounts to providing society with standard and comparable ratings that leave no doubt on the state of this battle.
Their second proposal is to commit to true impact measures for E and S. Many of the proxy measures that proliferate today are leading us astray in this regard. Nothing is as destructive as purposeful execution driven by wrong or misleading measures. The authors propose impact measures that are standardized, transparent, and easy to grasp, allowing corporations - and governments - to make proper trade-offs between economic and sustainability performance.
Finally, the authors argue why the proposed impact measures, particularly when taken jointly, provide a needed clarification and move the sustainability debate beyond its current meanders. They conclude by illustrating how their proposed impact measures can be applied to govern corporations more effectively in quest for greater sustainability.
Faculty
Emeritus Professor of Technology and Operations Management
