DP16061 ESG Investing: Only Part of the Climate Puzzle
In the absence of sufficient public support for carbon taxes, a more sustainable approach to finance—one that incorporates environmental, social, and governance (ESG) considerations—could be part of the way forward to address climate change. However, our analysis finds no robust link between ESG scores and carbon footprints of major upstream firms—on the supply side of emission-intensive production chains. ESG scores tend to reflect what these firms say they (will) do, not what they actually do, to contain their carbon footprints. Comprehensive disclosure requirements in this important area—and continued efforts to build consensus for effective economy-wide policies targeting carbon emissions—remain crucial.