Corporate ESG Performance Improves, But Violations Are Also on the Rise
A new global report shows that companies are getting better at following environmental, social, and governance (ESG) standards. However, at the same time, more violations of responsible business practices are also being reported.
The report comes from ISS ESG, which is the responsible investment division of Institutional Shareholder Services Inc., a well-known advisory firm that helps investors make better decisions.
More Companies Getting High ESG Ratings
According to the ISS ESG report, more companies than ever before are being rated as “good” or “excellent” in how they handle ESG issues. In fact, the percentage of companies worldwide receiving these top ratings has gone up from just over 17% last year to 20.4% this year.
In developed countries, the progress is even clearer: over 67.5% of companies in those regions are now rated as “medium” or higher. That’s the highest level ever recorded by ISS ESG. The report also noted that emerging markets are improving too, although their average ESG performance still lags behind.
Supporting the UN Sustainable Development Goals
The report also looked at how companies are helping to achieve the United Nations Sustainable Development Goals (UN SDGs). These global goals aim to improve health, education, equality, and protect the planet by 2030.
ISS ESG found that 41% of the companies it reviewed contribute positively to these goals through their products or services. Among them, 8% make a significant positive contribution.
However, not all companies are moving in the right direction. About 27% of companies are seen as actually hurting progress toward these global goals, rather than helping.
Violations and Controversies Are Increasing
Despite the positive trends, the report also revealed a worrying development: violations and controversies are increasing. Research into cases where companies failed to follow responsible business standards has gone up by 40% this year across all ESG categories.
The most common problems are related to human rights and labor issues, which made up 56% of all reported controversies. This includes poor working conditions, discrimination, and unsafe labor practices.
The industries most exposed to environmental risks are the materials, energy, and utilities sectors. When it comes to social risks, companies in materials and energy again lead the list. Meanwhile, banks, capital goods companies, and pharmaceutical firms face the most governance-related controversies, issues like poor leadership, lack of transparency, or unethical corporate behavior.
Why This Is Happening
According to Robert Hassler, managing director at ISS ESG, the rise in violations isn’t entirely surprising. He explained that part of the reason is that public expectations are getting higher. People are paying more attention to how companies behave, and standards for responsible business conduct are rising.
In some cases, companies are simply failing to take the right steps to prevent harm. But in other cases, the increased number of reports may also reflect growing awareness and better tracking of bad behavior.
“The positive developments highlighted in this report notwithstanding, there is still a long way to go as reflected in the increased number of controversies,” Hassler said.
The Big Picture
The overall message of the report is mixed. On one hand, more companies are working to improve their ESG performance, and many are making meaningful contributions to important global goals. On the other hand, there are still serious problems that need to be addressed, especially in how companies treat people and the environment.
This report serves as a reminder to investors, financial advisors, and the general public that it’s not just about numbers and profits anymore. Companies are now being judged on how they behave and whether their actions are truly responsible and sustainable in the long run.
