The legitimacy of ESG standards as an analytical framework for responsible investment

Abstract

This chapter argues that environmental-social governance (ESG), of which responsible investment (RI) is now a leading example, is built around models of social-political interaction in which participation and deliberation are key structural and procedural components. This approach provides a more holistically legitimate basis to corporate governance, rather than current models of corporate social responsibility, which focus on one or two attributes (such as accountability or transparency). In the conception offered here, a broad range of institutional arrangements are linked to the structures and processes of ‘good’ governance. Using a hierarchical framework of principles, criteria and indicators, which places these arrangements in a coherent framework for assessment, it is then possible to evaluate institutional quality. This approach is contrasted with the current, more restricted set of criteria used at present. The chapter concludes with some observations on the legitimacy of contemporary RI, and calls for universal standards to ensure consistency of governance across the sector, thus avoiding future crises of confidence analogous to the GFC.