NEW Pamphleteers blog

Is ESG a fad or is there any real value creation involved? What do you think?

ESG[1] – fad or value creator?

ESG has become the latest corporate “must have”. Rating agencies and consultancies are developing ESG scores for clients, using a variety of algorithms. But as the MIT “Aggregate Confusion” project found[2], companies could be in the top 5% on one ESG rating algorithm and the bottom 20% on another. And reputable firms like Shell find their ratings to be A from one rating agency and C+ from another[3]. A recent issue of the Financial Times’s Responsible Investing supplement, FTfm, notes that “a lack of definitions and data is a sizeable obstacle to sustainable (ESG) investing”.

Many more organisations – from the EU to the World Economic Forum and others –  are trying to provide a converged set of definitions and algorithms for ESG scores.

Our question is what are the resulting ESG scores useful for? Even if a definition is agreed, and the push to provide ESG data is achieved. Does a focus on improving ESG factors create value? Are there other tools that increase value better?

We start with clear and causal evidence[4] from analysis of US firms that imposing long-term incentives on executives — in the form of long-term executive compensation — improves business performance. Long-term executive compensation includes restricted stocks, restricted stock options, and long-term incentive plans. Firms that adopted long-term compensation experienced a significant increase in their stock price. This stock price increase foreshadowed an increase in operating profits that materialised after two years. The reasons for these improvements in performance were that firms made more investments in R&D and stakeholder engagement, particularly in employees and the natural environment.

It is not clear whether adding explicit long term incentives for executives would have such a significant effect in cultures outside the USA.

The same authors looked at the implications of integrating environmental and social performance criteria in executive compensation[5], again in US firms. They found that this does mitigate corporate short-termism and improves business performance: firms experience a significant increase in firm value, which foreshadows an increase in long-term operating profits. The findings suggest that integration of environmental and social criteria directs management’s attention to stakeholders that are less immediately salient but financially material to the firm in the long run.

From another direction: in 2007 Ethisphere started gathering and collating non-financial data alongside the financial results of those it judged most ethical. The 2021 Ethics Index was a list of 135 publicly-traded companies, the “World’s Most Ethical Companies”. Scoring of companies is based on the Ethics and Compliance Program, explores the culture of ethics, Corporate Citizenship and Responsibility, Governance, and Leadership and Reputation. Ethisphere looks for companies to integrate ethics and values with corporate strategy; for organisations that encourage employees to speak up; for decisions to be transparent; to exercise social responsibility by looking for innovative ways to make a difference; and includes the safety of employees, equity, inclusion and social justice. It finds that the companies in their Index outperformed a comparable index of large cap companies over the past five calendar years.

The research discussed above suggests that:

1. Value is created when the executive team have long term compensation packages. Data on this is normally in the public domain and does not need extensive consultancy or data collection.

2. Long term compensation packages seem to lead to more innovation, social responsibility, emphasis on the environment and employees, and also to value creation. Some of these activities might be picked up by the Social Impact and Governance factors in ESG scores.

3. A focus on issues which are not sector specific, relating to the ethical culture and behaviour of the firm, seems to lead to long term value of the firm. We have not found any data relating ethical culture and behaviour to long term executive compensation, though intuitively they might be expected to be correlated.

These three conclusions seem to span all private sector firms. They could also apply to the public sector, though they are not designed for that.

We then started to think specifically about the Environmental Impact factors of ESG. The focus on carbon zero and reduction in fossil fuel usage has become centre stage. Many new measures of environmental impact have been introduced, often sector specific. So, for instance in the oil and gas sector, the Task Force on Climate-Related Financial Disclosures (TCFD) allows firms to align their strategies against  targets set by international agreements. In data centres, the drive is to use low energy processor chips. In firms in the construction industry, reducing emissions is dependent on the replacement of diesel by electric vehicles to excavate and to move earth and materials, and on finding alternatives to concrete. So firms’ Environmental Impact are very dependent on sector specifics, and would seem to be measurable separately from SG scores.

Bringing these trains of thought together to answer the question – if (when)  ESG definitions and data collection were in place, would the resulting ESG scores help firms to create value?

The above analysis suggests that an organisational focus on improving ESG scores could lead to longer term executive orientation, and hence to some of the benefits highlighted above. It also suggests that the environmental aspect of ESG is usefully separated out from the social and governance factors.  A focus on SG plus ethics, employee culture and social behaviour through long term executive orientation could have a more direct effect on value creation.

Maybe the famous quotation from General Eisenhower “plans are useless, but planning is essential” helps to explain what we seem to be observing with ESG. So, ESG scores are a fad, the value creation comes from the process of creating them.

Gill Ringland and Patricia Lustig

June 2021

First published on Pamphleteers website, 4 June 2021. New blog on Long Finance which focuses on #ESG and #Ethics

[1] Environmental impact, Social impact, Governance

[2] Aggregate Confusion: The Divergence of ESG Ratings by Florian Berg, Julian F Kölbel, Roberto Rigobon :: SSRN

[3] Voluntary reporting standards and ESG ratings | Shell Global



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Foresight In The Time Of Covid-19 – How Next?

In April of 2020, we started to think about some potential effects of Covid-19. What we missed was an understanding of how seismic the changes will be.

Many people still seem to think that when the Covid-19 pandemic is ‘over’, everything will go back to ‘normal’. But we, as many others, think that this not possible – things have already changed, and we have a new baseline. Further, since April, WHO has predicted that Covid-19 will become endemic and that it is small beer compared to what may follow– and the next “pandemic disease X” may be sooner than we think.

Are there any signs that somebody is thinking about how to improve life on our unique planet? While everyone differs about what future they want, one thing is certain: it is not going to be what we had before Covid-19. What frameworks do we have for discussing, evaluating and navigating towards our preferred futures?

Here are four frameworks within this new viewpoint.

1) Voluntary Partnerships; Business, organisations like the CBI and labour organisation such as the TUC both argue that the time is right for a “Good Business Charter” to encourage responsible capitalism and publicly acknowledge those companies who exhibit such behaviour.

The Good Business Charter is a simple accreditation which organisations in the UK can sign up to in recognition of responsible business practices.

It measures behaviour over 10 components: real living wage, fairer hours and contracts, employee well-being, employee representation, diversity and inclusion, environmental responsibility, paying fair tax, commitment to customers, ethical sourcing, and prompt payment. A company must meet all 10 commitments to receive GBC accreditation, which is open to private sector, public sector and charity organisations of all sizes.

2) Systemic Approaches; Doughnut Economics started as a book by Oxford economist Kate Raworth. She identifies seven critical ways in which mainstream economics has led us astray and sets out a roadmap for bringing humanity into a sweet spot that meets the needs of all within the means of the planet. En route, she deconstructs the character of ‘rational economic man’ and explains what really makes us tick.

The Doughnut Economics Action Lab is about turning Doughnut Economics from a radical idea into transformative action. It has defined a generative enterprise producing benefits, which will differ from an extractive enterprise in five ways: purpose, networks, governance, ownership, and finance.

3) Evangelism; B Corpsbelieve that society’s most challenging problems cannot be solved by government and non-profits alone. By harnessing the power of business, B Corps use profits and growth as a means to a greater end: positive impact for their employees, communities, and the environment. The B Corp community works toward reduced inequality, lower levels of poverty, a healthier environment, stronger communities, and the creation of more high quality jobs with dignity and purpose.

Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps are accelerating a global culture shift to redefine success in business and build a more inclusive and sustainable economy.

“B Corps form a community of leaders and drive a global movement of people using business as a force for good. The values and aspirations of the B Corp community are embedded in the B Corp Declaration of Interdependence.” (from the web site)

4) Pole Stars; A useful framework, used by an increasing number of organisations , is the United Nations’ Sustainable Development Goals (SDGs). The SDGs were establishedin 2015 by the United Nations General Assembly and are intended to be achieved by the year 2030. The 17 goals cover social aspects such as hunger, health and education; economic aspects such as poverty, employment and development; and environmental aspects including water, biodiversity and climate change.

The frameworks of the post-World War II era have largely focused on the drive to bring people out of poverty. We’re all aware that a side effects of this drive, which allied with globalisation and technology developments, has meant that we have ended up with the peculiar situation that 1% of the population have half of global wealth.

The new frameworks that are emerging today are different from those of the previous generation in that they integrate the needs of the planet and the needs of people. They also take into account evidence which shows that financial inequality is correlated with health and social problems.

We welcome discussion with readers who are aware of other or better frameworks!

Patricia Lustig and Gill Ringland, January 2021

First published on 26 January on Long Finance Pamphleteers:

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Global Risks of Software – new blog on Long Finance

New blog out for Long Finance: #AIfuture#AI#Software

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NEW blogs on after #COVID19

We’ve been busy – in the past two weeks we’ve written two blogs revisiting past work, but now after #COVID-19: How does the pandemic affect the new middle classes in Asia? It may well set them back for years… What has changed since the initial discussions (in 2000) of what London would be like in 2020? Some thoughts on what has changed and what may emerge.

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In Safe Hands – 10 years on

In Safe Hands explores the future of Financial Services in 2020, and the effect of the Covid19 Pandemic. The original Report by SAMI Consulting and z/yen, in 2012, asked whether the Washington Consensus might break – in 2020 we perceive that this happening faster than we expected. In 2020, for the first time in recent history, we are facing a period in which global population starts to decline. In 2020, many of the current Financial Services institutions such as insurance are finding themselves on shaky ground. The briefing by Gill Ringland and Patricia Lustig will be followed by a Q & A moderated by Professor Michael Mainelli.

For those who are interested, ‘In Safe Hands – 10 years on’ will take place on Thursday 14 May at 14:30. Reserve your place!

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Foresight in the time of Covid-19

A version of this blog was first published on the Pamphleteers blog for Long Finance

Prediction and Uncertainty

This article is written at the end of March 2020 and discusses the role of foresight in exploring some of the impacts – beyond the economic – of the current Covid-19 pandemic.

All the news might push you back into  primeval brain patterns, making you think  about the pandemic,  “OMG it’s a bear!  Fight or flight?”  How could we come to perceive the pandemic as “No, it’s NOT a bear?”  This would release our energy and imagination.  As Milton Friedman said[1] “Only a crisis – perceived or actual – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. Our function is to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.” Or as we say, the Overton Window has shifted.

We don’t have experience of this pandemic, so what ideas DO we have to weather now, AND benefit after the crisis?  How do we stop seeing the bear? 

We have some experience – Spanish flu, SARS, MERS, etc. – and we know that epidemics are likely to happen.   We don’t know their size and shape, but we need to do some planning. The current Covid-19 pandemic was predicted, in the sense that, after the SARS outbreak in 2003, a number of countries built systems for containing epidemics. In Singapore, for instance, they took advantage of their previous experience with SARS and all major public hospitals in Singapore have isolation rooms so patients with suspected infectious diseases will not spread them to others.   Europe and North America didn’t adapt their health systems after previous experience with epidemics. 

In the past 50 years in most of the west, experts have been denigrated and public health systems allowed to run down.  Experts’ views that society is unprepared for a pandemic has been ignored by populism.  This lack of preparedness is prompting awareness that the planet needs a better response than the current patchy system with insufficient resilience. 

The evidence is that foresight can enable people to develop alternatives to existing policies.  Views of choices releases peoples’ energies and allows them to perceive the situation as ‘NOT a Bear’.

The role of Foresight

As Dwight D. Eisenhower famously said, “Plans are useless, but planning is indispensable.”[2]  When you have made plans for dealing with a pandemic and you find yourself in the midst of it, you are then part of it.  The plan may hold good up to the time the pandemic breaks onto the world stage, and it will get modified as it evolves. Having made a plan means that you know when it needs to be changed. And though plans may well be faulty – because they are based on data that is out of date or otherwise inaccurate – they are the best tool we have at the moment for managing the current situation. 

The role of foresight is different from the role of planning. Foresight helps you implement anticipatory action for moving forward after a pandemic hits. Foresight enables you to manage uncertainty by helping you see what you can[TL1]  change and influence (and what you can’t).  This helps reduce feelings of uncertainty.  It improves the quality of your decisions because you’ve thought through variations of what could happen which gives you a wider range of choices.  And it improves your capability to manage changes because you will have thought through what risks and opportunities there are based on the variations of what could happen and also how you might know which variation was occurring and happening now, so that you can implement the best response.

Using foresight, we can think about society after the pandemic: what may be different and what stays the same.

After the pandemic

As do many others, we think that the world will be very different after the pandemic has receded. Close to home, the potential for political disruption in Europe is enormous – the disjoint between national health systems has led to the closing of borders for the first time in decades. Europe’s future will depend on the ability to rebuild trust between nations. 

Below we consider three areas of global impact: economic, societal and changes in travel behaviour.

First, the economic impact can be thought of in four waves (thank you to Mark Zandi of Moody’s Analytics):

  • Wave 1, the sudden stop of much economic activity devastates supply chains and cash flow sends many small businesses under;
  • Then unemployment rises to unprecedented levels;
  • A long term effect is on the destruction of savings for pensions through stock markets collapsing;
  • And businesses cut investment as they try to recover.

We can see that though the 1 billion people across the planet at Level Four (in Hans Rosling’s terminology[3]) may be comparatively protected, the large numbers of people who have recently moved to Level Two or Level Three are likely to be highly affected. They have little economic cushion and may well lose their new incomes and savings. We think that loss of their consumer power will have the biggest impact on global recovery.

The effect on social structures may be less immediate than the economic impacts, but the pandemic has many facets which will change the world in the longer term.  Some of these phenomena are:

  • The role of volunteering to work for the benefit of strangers – over 500,000 people in the UK volunteered to back up health and social care services for people at risk from Covid-19;
  • The extent of scientific collaboration in life sciences has broken many barriers as companies share data, and information on the virus is shared in the literature as soon as available in the lab;
  • Governments could fall if their response to the pandemic is seen as incompetent – rumours abound as we write, of what is happening in Brazil;
  • Urban surveillance, mobile phone tracking and face recognition is likely to be introduced as emergency measures, and civil society will need to regulate this.
  • IT platforms becoming ever more ubiquitous, reducing social face to face interaction, makes the questions about how it is regulated and who owns the data increasingly important;
  • Once IT-enabled teaching has been proven to be effective, we could have a new education system;
  • The agricultural ecosystem was under stress before the pandemic, and it may cause a radical change in people’s eating habits – not just through the closing of restaurants but also through changes in peoples’ tastes;
  • The role of experts in contributing to policy has started to be recognised – after the rise of populism in the last 50 years.

And finally, the impacts of changes in travel behaviour are both immediate and long term: 

  • Severe reduction in the amount of travel has a large direct economic impact (travel and tourism account for about 10% of world GDP);
  • Globalisation is questioned;
  • It changes the nature of family links, which, for several decades have often been maintained through regular flights home;
  • The rise of video conferencing tools like Zoom and Skype for personal connections is being mirrored by their use in business to replace face to face meetings. Work and lifestyles will not revert when travel is again possible;
  • Office space may well become an oxymoron, so property prices in city centres and industrial parks may plummet;
  • There is also an environmental impact: the reduction in air pollution is visible globally;
  • Reductions in travel will add to the problems faced by fossil fuel companies as they try to realign to renewables and recover from the low oil price.


A lot of people are saying that change is happening, the world is becoming unrecognisable.  Fewer are thinking about the second order impacts and the longer term.  As the discussion above illustrates, foresight can improve the perception of possible futures such that anticipatory action can follow.  It can help us see that what is out there is ‘NOT a bear’.  It makes clear where we have choice and influence.  This builds hope.

Patricia Lustig and Gill Ringland.  March 2020.



[3] Hans Rosling et. al. Factfulness: ten reasons we’re wrong about the world – and why things are better than you think. 2018. and

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Our chapter in After Shock, Future Shock at 50

Patricia Lustig and Gill Ringland were asked to contribute a chapter to After Shock as “The world’s foremost futurists reflect on 50 years of Future Shock and looking ahead to the next 50”. You can see a copy of this chapter at our book website:

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New Blog on the Radix site

Changing the conversation – an example for how it can be done.

copyright P M Lustig 2012
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New opinion piece published on Radix UK website

Following on from our blog on the Overton window, we are publishing a new series with Radix UK. The first blog is on changing the prevailing conversation Radix: .  There will be some more coming where we share case studies of positive change.

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New blog on the Behind the Headlines website

We’ve just put up a new blog on our book website – please have a look. We are exploring how Shifting Values effects public discourse.

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