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BEP588

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CHAPTER 2

The Struggle to Define ESG

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From Transparency in ESG and the Circular Economy: Capturing
Opportunities Through Data
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By Cristina Dolan and Diana Barrero Zalles

(A Business Expert Press Book)
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Copyright © Business Expert Press, LLC, 2022. All rights reserved.

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 t
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CHAPTER 2

The Struggle to Define ESG

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Key Terms for Sustainability

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ESG, although very important, is a broad concept that comes in many
forms because diferent situations and contexts may be applicable for
certain components of ESG rather than its entirety. ESG is often used
interchangeably with other terms like sustainability, sustainable investing,
responsible investing, impact investing, and socially responsible invest-
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ing, and yet there are many facets to the various terms that have evolved
in this space.

Corporate Social Responsibility (CSR)

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Tis concept refers to a company’s notion of responsibility for the broader

impacts of its operations. CSR has developed increasingly so as to form
part of several corporations’ business model and daily operations. A cor-
poration can conduct its core business practices in ways that are meant
No

to be socially accountable to itself, its stakeholders, and the public. CSR

also refers to corporate citizenship, where companies become conscious
of their impact on all areas of society such as the social, economic, and
environmental efects of their business practices. CSR is a broad concept
and can take on several forms, including CSR departments, philanthropy,
and volunteer activities, and many ways that businesses can bring ben-
Do

efts to society as they boost their branding and reputation. Increasing

advocacy has brought about increasing accountability for companies to
develop responsible practices, their reputation, and very existence can rely
on maintaining a sense of basic responsibility.
Te emerging concept of creating shared value (CSV) described in
Chapter 1, as a development beyond CSR, is a push to shift CSR practices

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 28 TRANSPARENCY IN ESG AND THE CIRCULAR ECONOMY

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from being cost centers disconnected from business strategy to becoming

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a source of proftability through innovation and competitive advantage.

Triple Bottom Line

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Tis concept refers to a company’s pursuit beyond the bottom line in
terms of monetary proftability, but also positive results with respect to
environmental and social factors. In 1994, John Elkington, co-founder
of the business consultancy SustainAbility, published the book Cannibals
with Forks: the Triple Bottom Line of 21st Century Business, in which he

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identifed the newly emerging cluster of non-fnancial considerations that
would become increasingly relevant to defne future market success of
companies. Companies’ ability to perform well across the three factors
of proftability, environmental impact, and social justice would deter-
mine their competitiveness. He proposes that these should be included
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as factors determining a company or equity’s value, coining the phrase
triple bottom line, referring to the fnancial, environmental, and social
elements included in the new calculation. He also discusses seven sustain-
able revolutions that reveal the evolution of issues that business leaders
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must respond to while raising examples from several of the world’s most
renowned companies.
Te triple bottom line has led to an accounting framework that
includes social, environmental, and fnancial components. Te people,
or social equity bottom line, can be approached with respect to organi-
No

zational needs, individual needs, and community issues. Te planet or

ecological/environmental bottom line can be approached with respect
to a company minimizing its damage to the planet, with processes that
incorporate reduce, reuse, recycle pillars. Te triple bottom line has become
recognized as a UN-standardized term that extends the conventional bot-
tom line of fnancial proft to incorporate broader performance of a com-
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pany. A closely related concept of the double bottom line also extends
beyond fnancial performance by adding a second parameter in terms of
positive social impact. Overall, the qualitative nature of the additional
bottom lines implies a degree of quantifcation, for which there have been
several approaches and a degree of controversy.

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 THE STRUGGLE TO DEFINE ESG 29

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Circular Economy

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Tis refers to an industrial model that redefnes the use of resources in a
traditionally take-make-waste industrial model, in order to design waste
and pollution out of the system. Tis is implemented by keeping products
and materials in constant use, while regenerating natural systems of oper-

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ations, often at a very localized level. Certain concepts from the circular
economy can be adopted as principles underlying strategy-driven CSR
and CSV practices.

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Socially Responsible Investing (SRI)

Also known as social investment, sustainable or socially conscious invest-

ment, green investment, responsible investment, or ethical investment,
refers to any investment strategy that seeks both a fnancial return and a
social or environmental impact that results in positively regarded social
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change. While it evolved as a concept much earlier than the ESG trends
we see today, SRI focuses on the perspective of the investor, as opposed
to being a general term for corporate sustainability. Some socially respon-
sible investors encourage corporate measures to actively promote social
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good or environmental stewardship in many forms, and thus do good.

Others simply avoid business practices perceived to have negative social
efects, such as tobacco, fast food, gambling, fossil fuels, and so on, and
thus do no harm. SRI is a wide-spanning concept that can take several
diferent approaches.
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Certain investment approaches inspired by religious values have come

under the classifcation of SRI, such that the origin of this concept may
trace back to the Quakers in the 1750s, which prohibited adherents
from taking part in the slave trade. John Wesley, one of the founders of
Methodist Church, was an early and widely spoken proponent of SRI
in the 1700s, calling for his congregation not to cause any harm with
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their use of money, particularly industries with practices that harmed the
health of workers. Tis concept persisted with what came to be known
as sin stock sectors like alcohol, tobacco, gambling, sex-related industries,
and weapons manufacturers, as industries not to be invested in (negative
screening). SRI, however, didn’t gain signifcant traction until the 1960s

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 30 TRANSPARENCY IN ESG AND THE CIRCULAR ECONOMY

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when a series of social concerns that drove heated protests also came to be

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incorporated into investment approaches (e.g., equality for women, civil
rights, and labor issues). Vietnam War protests also put pressure on uni-
versity endowment funds to pull out of investments in defense contrac-
tors. Te famous photograph of a nine-year-old Vietnamese girl with her

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back burning with the chemical napalm caused outrage and divestment
pressure against the manufacturer Dow Chemical, which was exposed as
profting from the war.
Tis approach toward purpose-driven investment also came to defne
investment approaches of pension funds and institutional investors, into

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projects that would beneft investors at a social level, such as better hous-
ing or medical facilities. Today, SRI involves a number of investment
strategies, including capital markets and community investments (e.g.,
directly funding a given institution), which have shown a growing market
mainly in the United States and in Europe. SRI has defned several invest-
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ments in government-controlled funds, mutual funds, and exchange
traded funds (ETFs). Apart from negative screening and divestment, it
can also take the form of positive investment as a proactive approach to
adhere to a defned purpose, or impact investing within the alternative
investment space. With the rise of ESG and metrics today, much of SRI
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has become incorporated with ESG frameworks.

Today, Islamic fnance has also developed as a particularly popular
subset of socially responsible investing. It relies on Sharia law to guide
businesses and individuals in making capital raising decisions, as well
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as defning permissible types of investments. Islamic fnance traces its

roots to the seventh century, and over time, early Islamic caliphates had
developed more sophisticated market economies than Western Europe
by the Middle Ages. Islamic fnance was formalized in the late 1960s
and experience further gradual development ever since. It is based on
the concept of risk sharing, where an Islamic bank would pool inves-
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tors’ money and assume a share of profts and losses. Tis philosophy also
revolves around eliminating exploitative interest charges. Today, there
have arisen a number of proft and loss sharing contracts, as actively man-
aged mutual funds and passive funds, which screen investments for Sharia
compliance by parsing company balance sheets to determine sources of
income from forbidden activities. Tese funds have also been included

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 THE STRUGGLE TO DEFINE ESG 31

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in specifc indexes such as the Dow Jones Islamic Market Index and the

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FTSE Global Islamic Index. Other Islamic fnance practices include joint
purchases and leases of equity, such as home, in collaboration between an
investor/buyer and a bank. Installment sales involve intermediary buy-
ers and distributed profts. Leasing structures involve selling the right to

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utilize goods for a determined period of time, binding the lessor but not
the lessee to purchase that good, Islamic forwards, used for very niche
forms of businesses, involve prepaid prices for future sale under a number
of conditions that must be met in order to render contracts valid under
Sharia requirements. Te complexity of these agreements may often

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require the need for an Islamic legal advisor.

Environmental, Social, and Governance (ESG)

Environmental, social, and governance (ESG) can trace its origins in SRI,
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although it focuses on the concept of sustainability itself rather than a
narrow investment approach. ESG criteria set standards for a company’s
operations based on how environmentally or socially conscious their
operations are. Environmental criteria measure a company’s level of
responsibility with respect to the nature and protection of natural eco-
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systems. Social criteria measure a company’s responsibility with respect

to business ecosystems, including employees, vendors and suppliers, cus-
tomers, partners, and the surrounding community. Governance criteria
measure a company’s level of responsibility in its leadership, executive pay,
No

use of fnances, audits, internal controls, and shareholder rights. In the

last decade, major environmental concerns regarding social concerns, as
well as social and corporate governance concerns that led to the demise of
large frms, have led to ESG investing gaining signifcant traction.
ESG as a term encompasses the entirety of environmental, social,
and governance issues that any company, investment, or overall concept
Do

may relate to. For specifc corporations, clearly certain aspects of ESG
would be relevant, while others would not, but it’s still important to view
ESG in its entirety. Only with a holistic approach can the connections
among ESG issues be drawn and compared across diferent sectors in
order to draw insights and make decisions. Tus, ESG is not limited to
just environmentalism or just social concerns, even though only a subset

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 32 TRANSPARENCY IN ESG AND THE CIRCULAR ECONOMY

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Governance

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Corporate
Culture
and Technology

Environmental Social
Outcomes Outcomes

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Figure 2.1 ESG is defned by management and culture at a
governance level
© 2022 Cristina Dolan and Diana Barrero Zalles
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of these may be relevant for a particular analysis. Overall, any environ-
mentally or socially sound practices would trickle down from a compa-
ny’s decision-making structures, which are embedded in its governance.
Terefore, ESG originates not from isolated issues of concern but from a
tC

broader awareness ingrained into the entire corporate culture that a com-
pany sets, which infuences all aspects of its daily operations and core stra-
tegic principles. Leadership is key for setting a trajectory that will trickle
down across an organization to defne ESG implementation in various
forms, integrated within the business model and strategy of a company.
No

Importance of Precision
Te terms that have been coined so far to defne sustainability can difer
widely in their approach, their focus, and the perspective of the stake-
holders they may represent. Specifcity and measurability are extremely
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important in order to measure results of sustainable business practices,

as well as monitor and evaluate impact objectively over time. In imple-
menting ESG initiatives, companies must also make sure their milestones
are realistic and achievable, by appropriately focusing on the subset of
ESG most relevant to their business objectives. For example, in infra-
structure and architecture, there are metrics around materials to be used

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 THE STRUGGLE TO DEFINE ESG 33

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Adopting Participation of all
Leadership Buy-In
Innovations Stakeholders

• Cost reduction • Collaboration and • Management

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• Transparency Coordination • Strategic decision
• Accountability • Synergies making
• Efficiency • Resource allocation • Staffing
• New solutions • Key partnerships for • Resources
interdisciplinary • Corporate Culture
issues

Figure 2.2 Factors to advance ESG implementation

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© 2022 Cristina Dolan and Diana Barrero Zalles

with respect to their environmental impact, as well as considerations of

carbon footprint with respect to energy usage of buildings. In the fnan-
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cial sector, the most relevant components of ESG revolve around gover-
nance and management’s sense of responsibility, which can in turn trickle
down toward fund fows directed at particular concerns with recognition
of the multifaceted impacts on the economy. Technology frms, on the
tC

other hand, would largely be measuring energy consumption and the

amount of physical heat caused by their operations. For those frms with
a social media element, socially responsible concerns may revolve around
preventing abusive language while defending freedom of speech, and at
the same time safeguarding users’ privacy.
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Key Factors for Implementing ESG

Participation of Various Stakeholders

Te breadth of ESG and the stakeholders it impacts inherently requires

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an integrated approach that actively engages all parties involved. Collabo-

ration and coordination can produce synergies in confronting global and
complex issues such as climate change and supporting small and medium
enterprises across local economies. Key partnerships are crucial across the
public and private sector, and particularly NGOs, which often have very
specifc and valuable expertise in specifc felds.

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 34 TRANSPARENCY IN ESG AND THE CIRCULAR ECONOMY

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The Purpose Behind ESG: The Church and Academics

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Among the various stakeholders voicing the importance of ESG, for
instance, Pope Francis released a 2015 encyclical Laudato Si: on care for
our common home,1 where he called for a swift and unifed global action
toward ESG interests in light of Catholic Social Teaching.2 Tere had

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been a history of papal encyclicals calling for a sense of stewardship over
human beings and the environment since the days of the frst Industrial
Revolutions. In the 1891 encyclical Rerum Novarum (“Rights and Duties
of Capital and Labor”),3 for instance, Pope Leo XIII addressed the condi-
tions of workers and the need for sustainable resources, stating that labor

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and capital must collaborate together toward common goals as the indus-
trial age brought massive global changes in people’s lifestyles. In 1991, in
the wake of the fall of communism in Eastern Europe, Pope John Paul
II’s encyclical Centesimus Annus (“Te Hundredth Year”)4 shed a positive
light on the market economy, with the condition that capitalism shed
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human injustices. Laudato Si received particular global attention in con-
nection with the SDGs and overall global movement toward ESG inter-
ests. Pope Francis spoke at the opening ceremony for the SDG launch at
the UN General Assembly in September 2015.
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He proposes that science and pragmatism cannot be in contradic-

tion with moral questions, and we must approach global issues with an
awareness of their interconnectedness among various aspects of human
existence. He also denounces excessive consumerism, irresponsible eco-
nomic growth, and a globalization of indiference, which have broader
No

consequences to be concerned about that in turn threaten the economy

itself by depleting the context from which it benefts. He raises the strong
connection between safeguarding the environment and the safeguarding

1
www.vatican.va/content/francesco/en/encyclicals/documents/papa-franc-
esco_20150524_enciclica-laudato-si.html
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2
www.usccb.org/beliefs-and-teachings/what-we-believe/catholic-social-
teaching/seven-themes-of-catholic-social-teaching
3
www.vatican.va/content/leo-xiii/en/encyclicals/documents/hf_l-xiii_
enc_15051891_rerum-novarum.html
4
www.vatican.va/content/john-paul-ii/en/encyclicals/documents/hf_jp-ii_
enc_01051991_centesimus-annus.html

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 THE STRUGGLE TO DEFINE ESG 35

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poor, who are disproportionately more vulnerable to the efects of envi-

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ronmental degradation: “we are faced not with two separate crises, one
environmental and the other social, but rather with one complex crisis
which is both social and environmental.” Te gravity of these issues jus-
tifes the moral obligation for the global community to fnd a sustain-

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able path forward. A fragmented approach toward these initiatives runs
the risk of creating extremes, either protecting the environment at the
expense of human concerns, or addressing social issues at the expense of
the environment.
An economy that doesn’t value the human person, in a consumerist

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society that disposes of things like it disposes people, becomes indiferent
to truth, beauty, and goodness, and loses its sense of the common good.
In fact, it would be the noblest use of human free will and moral agency
to give up short-term interests for a greater good, as in the case of business
managers who fought for justice at the expense of immediate profts, in
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ways that ultimately strengthened their corporate brand and reputation.
Tis sense of responsibility, for example, pushed Johnson & Johnson to
take huge losses by recalling 31 million bottles of Tylenol from shelves
when a few were found laced with cyanide in 1982.
Te process of writing an encyclical includes an initial period (three
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years for Laudato Si) of research and discussion with world experts, regard-
less of their religious or non-religious afliation, on a specifc topic of con-
cern for a particular period in history. For Laudato Si, the panel of experts
invited to the Vatican included Jefrey Sachs, Director for Sustainable
No

Development at Columbia University and former Harvard University

professor of international trade. Sachs is also the President of the UN Sus-
tainable Development Solutions Network, having advised the three past
UN Secretaries-General on SDG issues. He notes that markets cannot
fully function outside of a moral framework because allocating excessive
profts and using resources irresponsibly create imbalances.5 Te world
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has witnessed the damaging efects of these imbalances through economic

inequalities and environmental disruptions. From an environmental per-
spective, we are experiencing the efects of pollution and greenhouse gas

5
www.americamagazine.org/issue/great-gift-laudato-si

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 36 TRANSPARENCY IN ESG AND THE CIRCULAR ECONOMY

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emissions in a way that greatly threatens the environment and human

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health and well-being. In dealing with these challenges, both technology
and markets need a moral direction, endorsed by leadership, for issues
that would otherwise be seen as solely scientifc, economic, or technical.

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Financing Opportunities and Risks From Disregarding ESG: From
Systemic Banks to Humanitarian Relief

As we have seen in the 2008 fnancial crisis, misaligned incentives arising

from a principal–agent problem gave way to a context of unconstrained

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risk taking that ultimately led to a fnancial debacle. Te global repercus-
sions disproportionately afected the less wealthy, while the government
bailouts and stimulus measures in response to the crisis disproportion-
ately beneftted the wealthy. As stated by Andrew Lo,6 professor of fnance
at MIT, fnancial crises occur when those who can’t aford to lose money
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do so, making an existing business environment unsustainable.
Ray Dalio and the Bridgewater Associates economic research team
illustrate the stark diferences between the top 40 percent and bottom 60
percent of the U.S. economy and how the wealth gap has expanded sig-
nifcantly with overarching implications across health, education, labor,
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and fnancial well-being, which are not apparent with merely average sta-
tistics.7 Te relative conditions of the bottom 60 percent have worsened
consistently, and policies have largely favored the top 40 percent. For
instance, the top 40 percent has a much greater ability to save and invest
in ways that create long-term benefts, whereas the bottom 60 percent
No

survives on much shorter-term fnancial decisions that increase vulner-

ability to economic shocks. Te resulting fnancial outcomes of both
groups refect very diferent realities within the same country, which also
contribute to polarization. Ultimately these diferences create important
inefciencies in the economy that in turn hinder productivity and output.
Te total output in the world, as shown in the following table,8 is in
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itself (without the potential for higher spending with higher incomes)

6
https://som.yale.edu/interview-andrew-w-lo
7
https://economicprinciples.org/downloads/bwam102317.pdf
8
www.statista.com/statistics/268750/global-gross-domestic-product-gdp/

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[email protected] or 617.783.7860
 THE STRUGGLE TO DEFINE ESG 37

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GDP in Trillions US Dollars (Source Statista 2020)
$160.00

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$140.00

$120.00

$100.00

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$80.00

$60.00

$40.00

$20.00

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$0.00
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Estimate Estimate
2020 2021

Figure 2.3 Gross domestic product (GDP) at current prices from

2009 to 2021 (in billions of international dollars)
© 2022 Cristina Dolan and Diana Barrero Zalles
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enough to mobilize the trillions of dollars needed to end poverty, as
denoted by the indicator framework for implementation of the SDGs.9
Tis global output should also provide enough resources to confront the
global environmental challenges. Yet, disjointed and fragmented eforts
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with limited results have justifed the need for all stakeholders to align
and collaborate toward these common goals. In fact, SDG #17 is precisely
to forge strong partnerships for the global goals.
Poverty is a scandal because it puts at stake human dignity, as described
by Carolyn Woo, former dean of the Mendoza College of Business at the
No

University of Notre Dame and former CEO of the international human-

itarian agency Catholic Relief Services (CRS), who now serves on the
board of Arabesque with Georg Kell. Business managers can lead in virtue
in a way that trickles down across organizations into what she calls inte-
gral human development. In its purely proft-seeking function, business
cultivates productivity for human fourishing and mutually benefcial
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trade connections, while providing jobs that elevate human endeavors in

all aspects of society. When we view poverty not just as a lack of resources
but as an exclusion from networks of productivity and exchange, business

9
https://documents-dds-ny.un.org/doc/UNDOC/GEN/N17/207/63/PDF/
N1720763.pdf?OpenElement

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 38 TRANSPARENCY IN ESG AND THE CIRCULAR ECONOMY

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provides access to such networks and becomes key to reducing poverty.

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CRS’s approach toward subsidiarity is an example of empowerment
through its training to local institutions with the aim to reduce their
dependence on foreign management and improve their ability to secure
grant funding on their own accord. While at CRS, Woo also identifed

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157 development assistance projects, launched between 2014 and 2014,
that utilized innovation through information and communication tech-
nologies (ICTs), becoming an early player in the larger movement of ICT
for Development (ICT4D).10

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Leveraging Data in a Hyperconnected World to Improve
Execution: Across Disciplines, From Health Care to
Government to Major International Organizations

Cisco Systems, jointly with ITU, predict the frontier of ICT4D to rely on
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trends toward connected sensors, machine-to-machine communications,
machine-to-people connectivity, and wireless sensor networks feeding
into big data repositories.11 Machine-produced data, such as that derived
from sensors, and the open availability of this data, would be defning
factors of this trend. Te use of the Internet, in combination with mobile
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technologies and big data analytics for global development projects, has
expanded signifcantly and improved outcomes. Te OECD has devel-
oped an Innovation Strategy12 to boost the efectiveness of SDG-related
initiatives. It proposes a set of principles to deploy innovative technolo-
gies and measure results. It highlights the role of frms, individuals, and
No

policy in advancing innovative solutions to overarching challenges, and

the importance of knowledge sharing across all stakeholders.
In the health care space for instance, Johns Hopkins University alone
has launched over 140 mHealth (mobile phone-enabled health care) proj-
ects in emerging economies. Under Dr. Alain Labrique, epidemiologist
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10
https://static.sched.com/hosted_fles/crsict4dconference2015a/84/2015%20
ICT4D%20Conference%20Welcome%20Presentation%20Final.pdf
11
www.itu.int/en/action/broadband/Documents/Harnessing-IoT-Global-
Development.pdf
12
www.oecd-ilibrary.org/content/publication/9789264083479-en

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[email protected] or 617.783.7860
 THE STRUGGLE TO DEFINE ESG 39

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and founding director of the Johns Hopkins University Global mHealth

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Initiative, and advisor to a number of global health agencies, including
the World Health Organization, UNICEF, USAID, and the mHealth
Alliance, a consortium of evidence-based mHealth projects has pio-
neered a needs-based approach to public health in resource-limited set-

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tings where disease and mortality risks are highest.13 Moreover, with the
initial support of USAID and later the WHO and additional partners,
the Digital Health Atlas,14 which started at JHU, aims to build a central
repository to register global digital health deployments. It is designed to
improve transparency and reduce duplication of resources while provid-

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ing useful open-source data and best practices for governments, technolo-
gists, donors, and other stakeholders to better coordinate and implement
digital health initiatives.
In the public services space, the Access to Information (a2i)15 program
in Bangladesh, which forms part of the Prime Minister’s Ofce under
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the Digital Bangladesh agenda, has introduced a citizen-centric public
services that capitalize on citizen engagement through tech platforms.
Under the direction of Anir Chowdhury, the program has pioneered the
world’s frst innovation lab of its kind, bringing together an ecosystem of
stakeholders across the country with a holistic approach to government
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that makes use of technology to enhance fnancial inclusion, civil registry,

country statistics, e-services from crucial ministries, and overall coopera-
tion. Trough a Facebook page and groups, public ofcials can commu-
nicate with citizens at a much more real-time and localized level, in order
No

to respond to needs more efciently. With the widespread use of social

media, damage to a rural road can be photographed and uploaded onto
the page. Te improved knowledge sharing can greatly enhance tailored
solutions. Ofcers have been shown to use the platform even in late night
hours to answer public queries, provide directions to subordinates, and
respond immediately to private demands.16 Te open access to data and
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transparency has improved governance, reducing the time to response to

13
www.jhumhealth.org
14
https://digitalhealthatlas.org/en/-/
15
https://a2i.gov.bd
16
http://a2i.gov.bd/publication/social-media-empowering/

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[email protected] or 617.783.7860
 40 TRANSPARENCY IN ESG AND THE CIRCULAR ECONOMY

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needs, solved a number of challenges, and reduced the costs of providing

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services.
Another example of an ecosystem wide initiative leveraging data and
innovation is Ofce of Innovation at UNICEF, which cultivated a startup
mentality in its organizational culture, established principles of innova-

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tion modeled after those of tech companies, which include being data-
driven.17 Apart from its Global Innovation Center, it launched an
Innovation Fund with new models of investment leveraging innovations,
with key founding members including the Walt Disney Company and the
Government of Denmark. One key area of focus is to implement ICT in

yo
contexts of rapid urbanization, where historically, the pace of city expan-
sion exceeded the availability of basic services—hence the emergence of
slums. After a series of hackathons where solutions were piloted, includ-
ing wearable devices documented in the Wearables for Good Challenge
handbook,18 an urbanization handbook titled Innovating for Children in
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an Urbanizing World proposes a number of use cases to deploy smart tech-
nologies to improve infrastructure (e.g., water and sanitation), transpor-
tation, basic services in health care and education, adequate response to
hazards, natural disasters, and pollution, and solutions for citizen engage-
ment and skills development to facilitate access to opportunity. 19
tC

Finally, the World Bank has launched an Open Data site20 to facilitate
access to data for its projects, while at the same time implementing pri-
vacy protection safeguards. It has also explored the use of non-traditional
data sources and techniques to enhance the delivery of services, decision
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making, and citizen engagement across its investments. Moreover, it allo-

cated a Development Data Group21 under Haishan Fu to further the use
of data for development projects across sectors and across stakeholders.
Interactive storytelling and data visualizations, for instance, can greatly
enhance insights collected on progress toward the SDGs, while survey
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17
www.unicef.org/media/59736/fle/Core-commitments-for-children.pdf
18
www.unicef.org/innovation/media/1416/fle/Wearables%20for%20good.pdf
19
www.unicef.org/innovation/media/156/fle/Urbanization%20Handbook%20
2017.pdf
20
https://data.worldbank.org/country/colombia
21
www.worldbank.org/en/about/unit/unit-dec#2

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[email protected] or 617.783.7860
 THE STRUGGLE TO DEFINE ESG 41

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data from across countries can be compiled and compared in useful ways

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to gather key insights. Te use of big data to address the SDGs was also
addressed during the Spring Meetings of the World Bank Group.22
Overall, the international development space has increasingly come
to focus on measuring the results of each investment, incorporating mea-

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surable indicators into the design of each project and methodologies to
monitor and evaluate them over time.

The Importance of Leadership: an Ecuadorian Minister, a U.S.

Presidential Candidate, and ECB President Creating Awareness

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and Taking Action

Leadership with integrity has become of utmost importance as a factor to

ensure sustainable and responsible corporate practices. It sets the stage for
corporate behavior and corporate culture, which are inherently linked, to
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respond to ESG concerns and adopt a sense of responsibility.
Another Arabesque board member, Yolanda Kakabadse, is also for-
mer President of the World Wildlife Fund International, former Minister
of the Environment of the Republic of Ecuador, in addition to having
held a number of leadership roles across various NGOs and advocacy
tC

groups and organizations.23 Yolanda’s initial role as founder of the NGO

Fundación Natura in Quito, which was established as a response to local
demands, brought awareness to the need for better defning environmen-
tal sustainability and educating various stakeholders at all levels. In order
to contribute with solutions efectively, there is a need for awareness. Her
No

endeavors to educate the population on issues like deforestation, land use,

water pollution, emissions, and biodiversity led the Ecuadorian govern-
ment to appoint her as Minister of the Environment. She contributed to
devoting resources for protecting ecosystems like the oceans, which are
the major source of food for a signifcant part of the population and yet
have been used as a dumping ground.
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22
www.worldbank.org/en/news/feature/2018/04/27/using-big-data-to-achieve-
the-sdgs
23
https://growthlab.cid.harvard.edu/event/leadership-global-environmental-
conficts-conversation-yolanda-kakabadse

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 42 TRANSPARENCY IN ESG AND THE CIRCULAR ECONOMY

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At a global level, her leadership roles in various international orga-

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nizations (e.g., World Resource Institute, Earth Summit, WWF, World
Economic Forum, Inter-American Dialogue) have called for close collab-
oration with the fnancial sector to allocate resources to address conser-
vation priorities. Kakabadse has been a thought leader helping fnancial

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industry players reframe the value of biodiversity and the natural capital
of the environment, as opportunities for proftable investments in sup-
port of sustainability processes. She paved way to defne the relevance of
fnancial industry players in protecting ecosystems by changing attitudes
toward these issues in ways that can see opportunity in adjusting their

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model of work, beneft from tools to defne ESG funding priorities, and
create excitement on the part of both funders and recipients of funding
for sustainability endeavors.
In the United States, former U.S. presidential candidate Al Gore
was very successful after his government career, adding value through
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his later work in advancement of sustainability issues.24 Like Kakabadse,
Gore found a huge need to begin by educating the public on the needs
and opportunities presented by ESG. His book An Inconvenient Truth
not only became an international best seller, but the movie version won
two Oscars, the audio version won a Grammy, and his overall endeavors
tC

for climate action won him a Nobel Peace Prize in 2007. Again like
Kakabadse, Gore eventually focused on mobilizing fnancing toward sus-
tainability issues, joining forces with large tech frms and becoming a
partner at the Silicon Valley venture capital frm Kleiner Perkins. Gore
No

also founded the advocacy group Climate Reality Project.

In running Generation Investment Management, Gore has intended
to re-envision capitalism by shifting incentives of fnancial and business
players toward reducing the damage of commercial excesses in the realm
of environmental, social, and political spheres. Corporate excesses are a
form of irresponsibility that he deems to be unsustainable in the long
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run. It is this long-term view that more than justifes investments in sus-
tainability, having recognized how short-term investment horizons, often
motivated by pressure to report quarterly accounting measures, have been
extremely damaging for businesses and overall economies. It is with this

24
www.theatlantic.com/magazine/archive/2015/11/the-planet-saving-capital-
ism-subverting-surprisingly-lucrative-investment-secrets-of-al-gore/407857/

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[email protected] or 617.783.7860
 THE STRUGGLE TO DEFINE ESG 43

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very approach that Generation has made more money by traditional met-

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rics, by investing in an environmentally conscious manner, than most
fund managers in pursuit of profts regardless of ESG costs.
Tis performance has defed the notion that individual investors are
often told, that it’s impossible to beat the market as a justifcation for

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passive investing. Generation’s global equity fund, where most of its assets
are invested, has performed consistently above the growth rate of the
MSCI World Index, which represents global stock market performance.
Even through the turbulent fnancial markets events that occurred in the
period 2005 to 2015, Generation’s average yearly return of 12.1 percent

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greatly outperformed the MSCI’s average of 7 percent. It earned the rank
of second place in a survey of among over 200 global equity managers,
while the volatility was among the lowest. Tis track record earned it the
recognition of major fund managers, that a long-term ESG-focused per-
spective may just be the opportunity the market has been missing.
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Finally, ECB President Christine Lagarde has openly endorsed sus-
tainable growth as a strategic objective for Europe. In her November 2020
keynote at the European Banking Congress,25 sustainability is a central
factor behind the trend toward digitization in order to foster adequate
growth that can ensure jobs, meeting social needs, including health care
tC

and education, and addressing climate change. She acknowledges that

meeting these goals requires policy actions that go beyond monetary pol-
icy but address the broader context in which central banks operate. She
frames the task at hand as not attempting to foresee but to enable the
No

future that is already upon us.

Lagarde has also set green policy as a priority for the European Cen-
tral Bank (ECB) agenda, defning it as a decisive factor for bond buying.26
Te ECB’s € 2.8 trillion asset purchase scheme is being used to advance
environmentally friendly pursuits, analyzing the impact of all of its oper-
ations in the fght to contain climate change. Tis has made the ECB the
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frst major global central bank to adopt green objectives at the center of
its bond buying agenda.

25
www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201120~e92d92352f.
en.html
26
www.ft.com/content/f776ea60-2b84-4b72-9765-2c084bf6e32

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[email protected] or 617.783.7860