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TotalEnergies Dropped from Sustainability Funds

French oil giant TotalEnergies, currently featured in the ESG Watch database, was dropped from Union Investment’s sustainability funds due to concerns over how the company has addressed controversies and allegations surrounding the East African Crude Oil Pipeline (EACOP) and liquified natural gas projects in Mozambique. Union Investment called for the company to commission an independent human rights audit into these projects.

Read more here.

Introducing ESG Watch: Holding “responsible” investment to its promises 

Inclusive Development International’s new ESG Watch website and company database illustrates how ESG investment routinely flows to companies linked to human rights abuses. 

Today, Inclusive Development International launched ESG Watch – a company database and website that tracks over $39 billion in environmental, social and governance (ESG)-focused investment flowing to companies that are linked to serious social and environmental harm. ESG Watch provides a platform to amplify the voices of communities affected by harmful corporate activities, publicize evidence of harm and hold financial services firms and investors accountable for fulfilling their human rights responsibilities.  

Companies found to be benefiting from this “ESG-washing” include fossil fuel and mining giants facing numerous human rights complaints, weapons manufacturers implicated in war crimes, and over a dozen companies that maintain business ties to Myanmar’s military despite its well-documented commission of genocide and crimes against humanity.     

“Any company that maintains commercial or business ties with the junta are ultimately complicit in the crimes and violations committed against the Burmese population in Myanmar,” said Mike, a human rights defender with the Blood Money Campaign, who uses a pseudonym for security reasons. “None of these companies should be rewarded with the financial and reputational benefits that come with high ESG ratings and investments by ‘responsible’ investors.” 

All financial firms and investors have a responsibility to avoid contributing to human rights abuses through their investment products, but especially those that describe and market their products as environmentally and socially responsible options. When these firms find themselves linked to human rights abuses through their products, they have a responsibility to use their leverage to address the harms. The ESG Watch website explains why so many ESG investment products fall short and who is responsible, including the role of passive investing approaches that rely on ESG-labeled investment indexes that are created and marketed by MSCI, FTSE Russell, S&P Dow Jones Indices and others.  

We created ESG Watch to call these actors out and demonstrate the need for reform, because if they lived up to their promises to the investing public, they could be a powerful force to incentivize responsible business conduct.  Exposing ESG-washing and publicizing the environmental, social and human rights impacts of corporations is particularly important at this time, as the European Commission is rolling back its proposed mandatory human rights due diligence and sustainability reporting directives and the new U.S. administration is dismantling climate disclosure and other environmental regulations. 

“The ESG investing industry needs to be held accountable to its human rights responsibilities, even as the very notion of responsible investing is under attack from the political right,” said David Pred, Inclusive Development International’s executive director. “Some asset managers may be retreating from ‘ESG’ labeling and rhetoric amidst these attacks, but they will continue to cater to the significant consumer demand for responsible investing options, which isn’t going anywhere. We cannot let that demand be coopted by false solutions—no matter how they are labeled.” 

When misapplied, the ESG label can do more harm than good 

When companies involved in human rights abuses benefit from ESG-focused investment, it not only betrays would-be ethical investors by directing their investments to unethical companies, it also poses a huge barrier for advocates and affected communities seeking remedy and accountability for those abuses.   

“Harmful companies cite high ESG scores or their inclusion in ESG investment indexes and funds as proof of their good human rights and environmental practices all the time,” said Inclusive Development International’s senior legal & policy associate Coleen Scott. “The ESG stamp of approval makes it harder to convince shareholders, lenders and other key stakeholders that the company needs to change.”   

We invite fellow advocates and affected communities to contribute to the database.  

The 28 companies currently included in the database—all of which Inclusive Development International and our partners are familiar with through ongoing advocacy and case work—represent a fraction of the harmful companies that are benefitting from ESG investment. We will be working with civil society partners and affected communities around the world to add new companies to the database on an ongoing basis, and to hold them and the ESG investment industry accountable.  Visit the contribute page to learn more.    

The ESG Watch company database reveals the extent of ESG investment going to a number of notoriously harmful corporations.  

Each company profile in the ESG Watch database presents evidence of the company’s human rights and environmental abuses alongside a tally of ESG-labeled funds that own shares in it, and the value of those shares. For example:  

  • TotalEnergies, a top contributor to global carbon emissions that is linked to numerous human rights controversies, including related to its East African Crude Oil Pipeline, benefits from over $1.6 billion in ESG investment.   
  • Rio Tinto, one of the world’s largest mining companies and the subject of numerous human rights and environmental complaints, benefits from over $480 million in ESG investment.  
  • Heidelberg Materials, a cement manufacturer accused of developing mines and factories over the objections of local and Indigenous communities in multiple locations, benefits from over $300 million in ESG investment.  
  • Elbit Systems, a defense firm accused of selling drones and drone parts to the Myanmar military, benefits from over $26 million in ESG investment. In total, 16 companies with business ties to Myanmar’s military are benefitting from over $36 billion in ESG investment, according to ESG Watch.    

ESG investing giants under scrutiny for fueling rights abuses in Myanmar

MSCI, FTSE Russell and S&P Dow Jones Indices are giants of the “responsible investing” industry, but according to complaints filed with the US, UK and Dutch governments, the firms are violating OECD guidelines for responsible business conduct by helping direct investments labeled “ESG” to dozens of companies linked to Myanmar’s military.

To read this release in Bahasa Indonesia, click here.

MSCI, FTSE Russell and S&P Dow Jones Indices, leading providers of investment indexes tailored for Environmental, Social and Governance (ESG)-focused investing, are violating the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct by promoting ESG-labeled investment in companies linked to Myanmar’s military. This is according to complaints filed this week by Inclusive Development International, Alternative ASEAN Network on Burma (ALTSEAN-Burma) and Blood Money Campaign of Myanmar (BMC). The complaints were submitted to the U.S.U.K. and Dutch National Contact Points for Responsible Business Conduct, which are government offices tasked with handling complaints alleging noncompliance with the OECD Guidelines for Multinational Enterprises. The complaints outline how each of the three firms has failed to uphold its human rights due diligence responsibilities and failed to use the considerable leverage it has over companies listed on its ESG indexes to address serious human rights risks and impacts stemming from those companies’ ties to the Myanmar military.

“MSCI, FTSE Russell and S&P Dow Jones are gatekeepers for trillions of dollars in ESG-labeled investment and the reputational benefits that companies gain from that investment. Under the international framework on business and human rights, they have a responsibility to use that leverage to ensure that the companies they are promoting as ‘responsible investments’ are not involved in human rights abuses,” said Natalie Bugalski, senior legal and policy director at Inclusive Development International. “Instead, they’re directing enormous sums of ESG-labeled capital to companies that are enabling violence and repression in Myanmar, without any attempt to prevent or mitigate this abuse.”

“Advocates in Myanmar and the diaspora are risking their lives to fight for human rights and democracy in their homeland. It’s devastating to know that companies at the top of the ESG investing industry are contributing to the violent and often deadly repression of their fight and the ongoing atrocity crimes in the country,” said Debbie Stothard, founder and coordinator of ALTSEAN-Burma.

MSCI, FTSE Russell and S&P Dow Jones Indices construct lists—known as indexes—of companies they consider to have rated highly on ESG factors, which greenlights those companies for inclusion in ESG-labeled investment funds (i.e., funds with names that include phrases like “ESG Leaders” and “ESG Screened”), which are marketed to investors as socially responsible. But Inclusive Development International’s research shows that the ESG indexes provided by these three firms systematically fail to accurately capture and reflect companies’ human rights track records. As a result, investment funds that are modeled on those indexes are littered with companies that are linked to serious human rights abuses, including in Myanmar.

“There is no question the regime is propped up by these multinational corporations that directly and indirectly provide Myanmar’s military with funding, arms and legitimacy on the international stage,” said Noh Noh, a pro-democracy activist from BMC. “That’s why we are calling on international business—and the ESG investing industry in particular—to sever its ties with the junta.”

Myanmar’s military is responsible for genocide and crimes against humanity according to UN human rights experts, who have called on businesses and investors to sever ties with the military. Yet, according to the complaints filed today, ESG-labeled investment funds managed by Blackrock, Vanguard, State Street and others, which are modeled on indexes created by MSCI, FTSE Russell and S&P Dow Jones Indices, own at least $13 billion worth of shares in dozens of companies that maintain such ties. Those companies include weapons dealers that are arming the regime (e.g., Bharat Electronics, which has supplied arms, radar systems and communications technology to the Myanmar military; and WĂ€rtsilĂ€, a Finnish company that is also reportedly involved in weapons sales to the military), tech firms serving the military-controlled national police force (including Axiata Group of Malaysia, which has a network of mobile towers that are used by the military, Alphabet and Apple, both of whose app stores are used by military-linked companies to promote their products), and others that direct profits to the military allowing it to surveil and violently crush dissent. (A full list of companies is included as an annex to the complaints, which can be found here.)

Human rights responsibilities of ESG index providers

Investment index creators exercise an incredible amount of influence over investment flows. As former chairman of the U.S. Securities and Exchange Commission Robert Jackson has said: “Fundamentally, millions of American families don’t choose what they invest in, an index provider chooses what they invest in.” Among index creators, those that create and sell ESG indexes hold an exceptional amount of leverage over companies that want to be added to or remain on those indexes. That leverage is derived not only from the ability to facilitate or restrict investment in those companies, but also from the ability to bestow reputational benefit upon the companies that are included in an ESG index.

recent paper published by FTSE Russell cites research finding that engagement by an ESG index firm and threat of expulsion from an ESG index doubled the probability that a firm failing to meet environmental criteria for inclusion on the index would comply within a three-year period. Another study found that companies adjusted their behavior in response to ESG index criteria. These studies demonstrate the considerable leverage held by ESG index firms. As a senior representative from MSCI told Inclusive Development International, “Companies often come to us asking what they need to do to stay on an ESG index.”

Under international human rights standards, ESG index providers have a responsibility to use their leverage to prevent abuses and remediate harms. As the complaints filed today demonstrate, MSCI, FTSE Russell and S&P Dow Jones Indices have failed to do so.

Inclusive Development International began engaging with MSCI, FTSE Russell and S&P Dow Jones Indices about these issues two years ago, around the one-year anniversary of the deadly coup in Myanmar. At the time, an estimated 2,500 people had died as a result of the coup and the violent crackdown on democracy activists that followed. Two years later, the death toll has surpassed 4,000 and none of the three firms has given any indication that it has taken steps to fulfill its human rights responsibilities. This is despite our ongoing communications alerting the firms to their exposure to specific companies doing business with the military and their obligation under the OECD Guidelines to use their leverage with these companies to address the serious human rights risks and impacts these companies are contributing to.

Additional Resources

Our submission to the UN Working Group regarding ESG investing and human rights

Inclusive Development International has responded to a call for input from the UN Working Group on Business and Human Rights as it prepares a report on the topic of “Investors, ESG and Human Rights.” We applaud the Working Group for focusing its attention on the important—though often underappreciated—implications of ESG investing for human rights and corporate accountability.

Inclusive Development International has responded to a call for input from the UN Working Group on Business and Human Rights as it prepares a report on the topic of “Investors, ESG and Human Rights.” We applaud the Working Group for focusing its attention on the important—though often underappreciated—implications of ESG investing for human rights and corporate accountability, something we have been focused on for several years as part of our “Stop ESG Washing” campaign. 

In our submission, we outline systemic problems in mainstream ESG investing that not only prevent the industry from delivering on its promises to consumers, but more importantly, create a system of ESG washing that undermines efforts to hold companies accountable to their human rights responsibilities. 

Our interest in ESG investing stems from years spent investigating the corporate and financial actors behind harmful investment projects, during which we regularly found that ESG-labeled funds were invested in corporations causing and contributing to human rights violations—including mining companies that pollute and grab land without accountability, construction companies that cut corners leading to death and destruction, and dozens of companies that are propping up Myanmar’s genocidal regime

ESG investment not only benefits these companies financially, but it can shield them from accountability. That is because many investors and lenders see a company’s high ESG ratings and inclusion in ESG-labeled funds as a “stamp of approval,” so are less likely to scrutinize its practices or to pressure the company to take corrective action in the case of human rights abuses. This cuts off an important avenue for advocacy, undermining efforts by communities and human rights defenders to secure redress.  

In our comments to the Working Group, we emphasize the role of two types of actors in directing ESG-labeled capital to harmful companies: 

  1. ESG index providers, the firms that create and maintain ESG-labeled indexes, which form the basis of many ESG-labeled funds
  2. ESG ratings providers, the firms that assess and rate companies’ ESG performance, helping to determine which are included on ESG indexes

Industry leaders MSCIFTSE Russell, and S&P Dow Jones offer both sets of products and services, giving them an enormous amount of power and leverage within the system. As we argue in our submission, they have a responsibility to use their leverage with companies that appear on their indexes to prevent or mitigate any human rights abuses those companies are causing or contributing to. That includes the responsibility to conduct due diligence to identify abuses and the responsibility to act when abuses are identified, including by downgrading implicated companies’ ratings and excluding them from their ESG indexes when problems go unresolved. 

Unfortunately, ESG ratings and index providers, including MSCI, FTSE Russell and S&P Dow Jones, rarely do any of this. 

Systemic reforms are needed to ensure ESG index and ratings products adequately capture and reflect human rights concerns, and to align the ESG investing industry writ large with the UN Guiding Principles on Business and Human Rights. Our recommendations, detailed in our submission, include: 

  1. ESG research and ratings firms must go beyond company self-reporting and corporate policies to assess actual impacts, including testimony from communities affected by a company’s operations. 
  2. ESG research and ratings firms should prohibit the use of amalgamated ESG ratings, which obfuscate salient human rights and environmental impacts. 
  3. ESG ratings should assess a company’s performance in each category in absolute terms, rather than grading companies on a curve against industry peers, as is current practice. 
  4. ESG ratings firms should ensure that the ratings of any company that has caused or contributed to serious human rights violations are downgraded to such an extent that it will be automatically excluded from ESG indexes and funds. The lowered score should persist until the human rights abuses are remedied—regardless of whether the “controversy” fades from the news cycle. 
  5. ESG ratings and index firms should establish effective human rights grievance mechanisms to receive complaints related to companies that are rated and listed on ESG indexes. 

As scrutiny from regulators and investors has increased in recent years, many financial actors have begun making adjustments to their ESG-related products. Our hope is that this shakeup will ultimately lead to truly responsible investing options.  

Our full submission to the UN Working Group is available here.

“Responsible investment” is fueling human rights abuses in Myanmar

ESG-labeled funds have over $13B worth of holdings in companies linked to Myanmar’s brutal military regime, a financial investigation reveals.

Companies with ties to Myanmar’s military are benefitting from over $13 billion in ESG-labeled investments, according to financial records and other information compiled and published today by Inclusive Development International and ALTSEAN-Burma. In their report, “The Myanmar ESG Files: How ‘responsible investment’ is enabling a military dictatorship,” the human rights advocacy groups document how hundreds of ESG (Environmental, Social and Governance) funds hold shares in 33 corporations that are enabling a brutal regime responsible for genocide and crimes against humanity. 

The $3.9 trillion ESG investing industry, which promotes itself as a way for investors to align their money with their values, is the fastest growing sector of financial services.  

“Activists on the ground have been risking their lives and liberty to stop the flow of money, weapons and other resources that has allowed the military to maintain its illegitimate grip on power,” said Debbie Stothard, founder and coordinator of ALTSEAN-Burma. “It’s shocking and devastating to see so-called ‘responsible investment’ doing the opposite.”

Companies receiving “sustainable investment” include weapons dealers that are arming the regime, tech firms serving the military-controlled national police force, and others that direct profits to the military, allowing it to surveil and violently crush dissent. Data compiled by Inclusive Development International and published today in an open-access online database show that ESG-labeled funds continued to hold shares in these companies even after Myanmar’s military was found responsible for two of the most egregious and well-publicized human rights crimes in recent history: the genocide perpetrated against the Rohingya and last year’s bloody coup and subsequent crackdown on pro-democracy protesters.  

“That dozens of companies with ties to Myanmar’s genocidal regime are included in ESG portfolios shows just how large the gulf is between ‘responsible investment’ marketing claims and reality,” said David Pred, executive director of Inclusive Development International. “The foundation of this fraudulent industry is a deeply flawed ESG ratings system, which is in urgent need of regulation.”

From responsible investing to ESG greenwashing

Tailoring investment strategies to consider ESG issues is increasingly common. Yet while the ESG investing industry is capitalizing on public demand for ethical and sustainable investing options, it is directing capital in ways that are neither – as evidenced by information revealed in the Myanmar ESG Files. 

This is in part because the process through which companies’ ESG practices are rated and then used to tailor investment portfolios typically only reflects information considered “financially material.” That means a company’s links to gross human rights abuses are only relevant insofar as they threaten its future profitability and share price. 

ESG ratings can also mask serious human rights abuses because they are based on an amalgamation of information about numerous indicators and a diverse range of environmental, social and governance issues. As a result, a company making and selling weapons used to perpetrate genocide and war crimes in Myanmar can effectively compensate for the reputational risks of that behavior and raise its ESG rating by, for example, committing to reduce its greenhouse gas emissions. 

The role of ESG index providers 

Firms that translate ESG ratings into suggested investment portfolios (ESG indexes), including MSCIFTSE Russell and S&P Dow Jones Indices, have enormous leverage to improve human rights compliance among companies seeking a spot on their indexes. Under the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, they have a responsibility to exercise that leverage – including by excluding companies that refuse to stop enabling the Myanmar military’s human rights abuses. Information documented in the Myanmar ESG Files demonstrates that all three firms are failing to do so.

The low bar for securing a place in ESG funds does more than direct “responsible investment” to the wrong place. It makes it harder to hold some of worst corporate offenders accountable. The “ESG” stamp of approval undermines the efforts of communities and human rights defenders to secure redress for corporate abuses by making investors less likely to engage and use their leverage to compel action. 

“Real socially responsible investing could be a crucial catalyst for advancing human rights in business,” said Pred. “But without a complete overhaul, the ESG investing industry is actually doing the opposite – greenwashing abusive companies and diverting energy from this potentially powerful force for good, with real human costs in Myanmar and around the world.”

Read the full report and access the Myanmar ESG Files database here: http://www.inclusivedevelopment.net/MyanmarESGFiles