ESG: ‘sustainable’ investing and the risk of infrastructural lock-in

Abstract

Various kinds of sustainable finance have grown rapidly after the 2015 Paris Agreement. But whether this allegedly ‘sustainable’ way of investing can actually fulfil the crucial task of facilitating the mitigation of climate change depends very much on the concrete business schemes and investment practices that are adopted. This chapter conceptualize ESG (environmental, social and governance) as the infrastructure that underpins ‘sustainable’ investing. We argue that ESG constitutes a particular set of market devices – data, ratings, and indices – that define the logic, structure, and outcomes of sustainable investing. Having historically emerged as market-driven private standards for governing how to invest ‘sustainably’, we demonstrate how a small set of private actors defines the infrastructural arrangements that guide ESG investing. Consequently, a preference for a market-friendly and one-sided conception of sustainability exclusively focused on risks to investors’ portfolios (‘single materiality’) was implemented by the actors that defined de facto standards. This setup of ESG creates what we call an ‘infrastructural lock-in’ whereby this particular conception of ‘sustainable’ investing – which is not utilising all available transmission mechanisms to actively advance sustainability becomes the baseline and the common standard for ‘sustainable’ finance.