Last week I said I would focus on finding specific companies that match the criteria of my research question. However, in the course of doing some of the work for my internship, my priorities have somewhat changed.
First, in my proposal, I (perhaps somewhat naively) wanted to avoid practices that used government tax credits/regulations/required emission disclosures to make profits and benefit the environment. After doing some work in the internship, this goal seems to be impossible. No reasonable company would engage in an environmentally beneficial practice without considering both the tax credits that could be obtained, and the positive public image that being environmentally friendly will bring.
In that vein, much of the research I did this week was into Environmental, Social, and Governance (ESG) financial practices. These were investments that had a role to play in being environmentally friendly, beneficial to society at large (such as reducing police brutality or homelessness), or reducing corruption in the administrative levels of the business world. As a whole, ESGs do not necessarily fit the goal of my project. They generally focus on improving a company’s image to the public and investors, rather than providing a strictly financial incentive. (Of course, increased investment and public involvement are, in the long run, beneficial to a business’s bottom line. However, image to the public isn’t the focus of my project).
What this reading did provide me is the resources for creating a framework to rate business practices. ESGs have a variety of external review boards to determine their value in benefiting the goals of ESG practices, each with a specific set of criteria. These criteria, and these goals, will be invaluable in rating those environmentally friendly business factors when it comes time to do so.
As I learn more about the priorities of various external ESG review boards, I can develop this rating system. One problem that businesses and investments have faced difficulty in managing all the systems created to review ESG’s. I’ve come across, for example, the UN Principles of Responsible investment, Task Force on Climate-Related Financial Disclosures (TCFD), CDP Global (Formerly Carbon Disclosure Project), The Climate Disclosure Standards Board (CDSB), Global Reporting Initiative (GRI), The International Integrated Reporting Council (IIRC), and The Sustainability Accounting Standards Board (SASB). Unifying these systems is one of the great challenges in the sustainable finance world, and will be one of the challenges I face in trying to figure out a ranking system. That will need to be a priority over the coming weeks.
Finally, I want to say that I’m going to need to alter the focus of my project, from the pure economics of a business to economics plus governmental and international regulations/ESG disclosure requirements and their impact on the business’s public image. I knew this may have been a possibility when I started, but I naively wanted to focus on the pure economics of environmentally friendly business.