BY ROB COX

General Electric’s doing it. So is Toshiba. And Johnson & Johnson. Breakups are all the rage and rightly so: The individual parts of sprawling corporations can be better managed on their own and are arguably worth more separately than the whole. But the biggest breakup of 2022 won’t be company specific. It’s time to spin off the letters in ESG.

The initialism stands for environmental, social and governance, and it first surfaced in a 2005 United Nations report. At the time it was a handy way for do- gooders to push the investor community to invest in solving communal problems they ignored in pursuit of the bottom line. It seems to have worked. Today more than $17 trillion of U.S. assets under management are dedicated to ESG-related strategies, according to the Forum for Sustainable and Responsible Investment, and growing at nearly 20% a year.

However, lumping the issues together unnecessarily complicated fund managers’ decision-making. For example, nearly 60% of investors polled by Natixis Investment Managers believe they have a responsibility to help solve social issues. But a larger majority – 78% – said it’s primarily the responsibility of governments.

Companies that do well in carbon emissions or “E”, may fail on board diversity measures. Alternatively, they may prioritise shareholder returns at the expense of sustainability or better maternity leave and call it good governance. Aggregating ESG measurement lets executives mask failures in one domain by outperforming on another. Unlike corporate debt ratings, ESG scores vary widely depending on who is doing the measuring.

Many investors are prioritising climate change, an area where financial investments can have direct, measurable impact, and one devoid of country-specific cultural values packed into social justice measures. But corporations that are sincerely committed to attacking all three problems are avoiding a blanket approach regardless.

“E, S and G are not natural bedfellows – and we don’t use that language,” Alan Jope, Unilever’s chief told Breakingviews. “We shouldn’t look too closely at the label, but at the actions that sit underneath it.”

As 2022 kicks off, with more corporate breakups undoubtedly in the offing, it is time to give the E, the S and the G their own independence too.

First published December 2021