ESG, DEI, And The Rise Of Fake Reporting

What are the mechanics of this coordination? To understand one of the games they play, consider the rise of measures and standards associated with DEI and ESG - both occupants of a highly abstract thought dimension and the latter an especially incomprehensible word salad. ESG as a phrase was coined in a 2006 United Nations report, gradually gaining adoption by private companies like BlackRock via the production of annual ESG reports.

Since early 2023, corporations in the EU have been compelled to report on ESG. Many US companies with subsidiaries in the EU must observe both US and European rules, and those in the Asia-Pacific region too are starting to follow the ESG reporting pantomime.

Bahar Gidwani, co-founder of a company called CSRHub, a compiler and provider of ESG company ratings, estimates that the collection of ESG data alone is already costing companies $20 billion worldwide.

It is an expanding industry too, since the reporting requirements keep increasing: according to recent reports, the head of the US Securities and Exchange Commission estimates that the cost of ESG reporting by the companies it oversees could quadruple to $8.4 billion this year, primarily due to the introduction of more ESG requirements.

DEI is the younger brother of ESG. At present, DEI reporting is not yet compulsory, but about 16% of the biggest US firms have open DEI reports, and the DEI fad is growing, perhaps eventually to eclipse ESG. Just as with ESG, DEI originates from the grandiose world of fluffy abstractions, big corporations, and governments.

Indicatively, in the seven quarters ending September 30, 2023, the S&P ESG Index was down 7.3%, while the S&P 500 was down 9.4%. Importantly, many ESG fund investors themselves are government-type entities, like public pension funds, where the distance between investment decision and personal consequence is about as big as it gets.

The push for companies to jump on the ESG reporting bandwagon is not confined to the West. 

https://brownstone.org/articles/esg-dei-and-the-rise-of-fake-reporting/