The demand for companies to align their business with environmental, social, and governance (ESG) criteria is rising ever more, and investors are seen as pivotal players to press for the adoption of more sustainable practices.
However, a new study indicates that while this investor pressure can lead to lower direct emissions from the companies in which they invest, it may sometimes result in pollution being shifted to the supply chain, which, in practice, does not alter the emissions for which the companies are responsible.
In an article published in the journal ‘Strategic Management Journal‘, researchers from the University of Hong Kong (China), the University of Melbourne (Australia) and Bentley University (United States) say that this ‘outsourcing’ can be reduced if investors help companies adopt more environmentally friendly technologies and if they directly supervise suppliers’ practices.
The aim of the work was to determine whether ESG-guided investments truly improve the environmental impacts of companies or whether pollution is simply displaced.
Shipeng Yan, the study’s first author, explains that investors, even the most experienced, are prepared to understand the companies in which they invest, but not to audit each level of the global supply chain. Moreover, data on production, emissions, and supplier relationships on the supply side are often incomplete, voluntary, or commercially sensitive.
For this reason, says Yan, it is possible to shift pollution to satisfy investors’ ESG demands.
The promotion of greater sustainability in companies is not the sole responsibility of investors, nor is it to be expected that the pressure they exert would be sufficient to bring about these changes. Still, these researchers say that they are central to helping the companies in which they invest tread this path and to avoid becoming greener at the expense of moving pollution beyond institutional borders into the supply chain.
