ESG is “inherently dangerous” as a way to measure early-stage businesses, according to former Shell Venture fund member and climate tech investor, Amoury Poulden.
Originally reported by Fintech Times, the remark was made during an episode of ‘Conversations on Climate‘, hosted by Chris Caldwell, CEO, and founder of green energy firm United Renewable.
During the interview, Cadwell spoke with Amoury Poulden, founder of venture capital firm D2 Fund. D2 Fund invests in early-stage startups with a focus on tech-enabled solutions across both climate and AI. Before founding D2, Poulden was a senior member of the investment team at Shell ventures, the corporate venture capital arm of multinational oil and gas producer Shell.
When asked his thoughts on the challenges small businesses face in accounting and reporting on ESG metrics, Poulden said, “This may be a little bit of a controversial opinion, but I really hate the term ESG.”
Following up his comment, the founder said, “You’re taking disparate strands of qualitative data, trying to quantify it and then trying to establish an absolute metric across different pools, which is inherently dangerous.”
When analysing how ESG is applied to smaller business, Amoury Poulden said, “in my experience [it] becomes a bit of a tick box exercise at best, and at worst starts to push the company into quite a process heavy model of reporting.”
Using the example of ammonia production and carbon insurance businesses, Poulden says D2 Fund will not benchmark them with one another because “they are completely different companies”.
He went on to follow that D2’s process is instead identifying businesses “fundamental purpose” along with the impact they make in the sector they’re operating in.
ESG experienced much scrutiny in 2022. In May, billionaire and tech entrepreneur Elon Musk tweeted to his nearly 100-million followers that ”ESG is a scam” after Tesla lost its place in the S&P 500 ESG Index. While others have called out ESG as a simply ‘great marketing hub to grab a whole load of dollars by sticking a label on it’.
While many believe that ESG can be a positive force in driving organisations to report and act on sustainability challenges, it seems that current frameworks and myriad approaches are not sufficient.
Research performed by CoreData in 2022 highlighted that more than a third of financial advisers are confused by ESG regulations, almost half are fearful of greenwashing.
In an attempt to combat this, the UK government is looking to set out a new green finance strategy in 2023, as well as consult on bringing ESG ratings providers “within the regulatory perimeter”, under the Financial Conduct Authority’s (FCA) remit.
