MARK KATCHEN, CIH, FAIHA, is the managing principal of The Phylmar Group Inc. in Los Angeles, California. Send feedback to The Synergist.
Ethics and ESG Ratings
Editor’s note: The case study in this article is fictitious and is intended to highlight ethical issues in the practice of industrial hygiene. Any resemblance to real people or organizations is coincidental. The opinions expressed in this article are those of the authors and do not necessarily reflect the opinions of AIHA, The Synergist, the Joint Industrial Hygiene Ethics Education Committee, or its members.
This month, we are examining ethics in the context of environment, social, and governance (ESG) ratings and ranking lists. The popularity of ESG scoring and investment has grown in recent years as more research and data firms, such as Intelligize and EY, have joined forces with mass media platforms, such as Investor’s Business Daily, Corporate Knights, and Newsweek, to produce lists of ESG company performance ratings. In 2021, investors poured more than $120 billion into exchange-traded funds marketed as comprising companies with strong ESG track records.
A significant ethical consideration is the threat of companies publishing misleading ESG data. The former chief investment officer of BlackRock, the largest asset manager in the world, has voiced concerns that ESG is being used mainly to generate marketing hype, better brand reputation, and stock price appreciation. Many companies—out of ignorance, lack of will, or leadership failure—take superficial approaches to building their ESG reputations by hyping token programs and philanthropic side projects that have no meaningful substance.
BlackRock and other asset managers’ inability to rely on a universally accepted definition of ESG creates ethical gray areas. In most cases, each company selects its own metrics that allow it to present only its successes. The lack of standard normalization algorithms makes comparison from one company to another almost impossible. The ESG landscape is evolving, but without consensus standards and definitions, ESG scoring is in a “wild west” phase of development. Thus, companies are currently allowed to self-define their ESG reputations.
SCENARIO Global General Appliances (GGA) is an American multinational manufacturer and marketer of home appliances with a workforce of 78,000 employees, 57 manufacturing and research centers, and $19 billion in annual revenue.
GGA has a new, 45-year-old CEO who is very enthusiastic about getting the company listed on ESG scorecards. He proposes to turn the environmental health and safety (EHS) corporate department into an environmental, social, and governance (ESG) affairs department, a transition that was executed at his previous company. This young CEO rose through the corporate ranks in the 2000s and has been familiar with ESG since the term was coined in a 2005 International Finance Corporation study titled “Who Cares Wins—Connecting Financial Markets to a Changing World.”
GGA publishes a short corporate responsibility report each year, but the CEO understands that to get listed on important scorecards, he needs a much more robust set of initiatives and metrics and a longer annual publication.
Across the GGA enterprise, the CEO’s push for more ESG activities and scores has trickled down the organization chart; division VPs, plant managers, human resources, line supervisors, and those previously known as EHS staff members all feel pressured to give the CEO the numbers he wants.
This challenge is fine with Judith, a company certified industrial hygienist with previous experience handling responsibilities that overlapped with industrial hygiene, health and well-being, safety, and environmental protection.

The ESG landscape is evolving, but without consensus standards and definitions, ESG scoring is in a “wild west” phase of development.
Judith has specific interest in elevating safety and health in her company. She has proposed several new leading indicator metrics for environmental and safety issues, which she intends to help her assess the company’s carbon footprint, employees’ exposures to toxic substances and noise levels, the number of near misses reported, the number of behavioral observations made, the number of employee training hours, and the number of audits conducted annually.
Judith accesses EHS data showing GGA informally tracks many of these measures. However, her research reveals the company’s culture does not follow through on many metrics that look good on the surface. Carbon footprint assessments and noise level exposure readings have been misrepresented. Near misses are reported but not quickly addressed. Behavioral observations amount to notetaking exercises with little engagement following observations. Measuring safety and health training hours assesses only the quantity of training delivered, without a mechanism to gauge learning effectiveness. Audits are staples of safety and health affairs, but there is no depth or uniformity to the auditing data. There are no deep dives into how audited risks are assessed or how many of the identified hazards are brought to closure. She knows that identifying concerns without addressing them puts the company at even greater risk.
Judith has come to believe that, at GGA, the “S” in ESG stands for superficial. She investigates the shortcomings she identified and reports them to her boss. Her supervisor, who has been at GGA longer than she has, tells her it’s going to be an uphill slog getting senior executives and the board of directors to commit resources to bringing more quality to these metrics. Most of the board members and several senior executives climbed the corporate ladder 10 or 20 years before the ESG boom and have not embraced ESG, particularly the “social” and “governance” issues. They tend to believe that material “social” issues, such as safety and health, human rights, and human resource development and benefits, are “soft” values with negligible impact.
While GGA’s new CEO has a personal interest in the ESG agenda, board buy-in on ESG investments is crucial. In August 2019, the Business Roundtable’s pronouncement of corporate purpose was a broad and powerful embrace of positive ESG behavior that required board action to execute. But research by the NYU School of Business shows that many boards have little ESG-related expertise, and many do not even recognize the value of monitoring material sustainability issues.
FOR DISCUSSION Judith believes that her proposed ESG leading indicator metrics, which cover safety and health issues, will boost the company’s credibility in regard to the “S” aspects of ESG. Her proposed metrics emphasize quality of measures, not quantity.
Judith’s research has uncovered indicators that were informally tracked by the company but represented as misleading half-truths. Middle managers often feel pressure to report good numbers and resort to misrepresenting numbers to please the CEO.
Judith also confronts a lack of specificity regarding company-sponsored civic activities. The latest annual GGA sustainability report states that an unspecified number of employees have made significant contributions to local foodbanks and animal rescue organizations and that dozens of staff members each year participate in fundraising unspecified dollar values for a variety of charities.
What are Judith’s options? How hard should she push back against the chain of command, starting with her EHS superior? How does she show the worth and positive impact of ethical ESG metrics?
Should she go directly to the CEO and lay out the truth about half-baked ESG efforts? Is he already aware? Will he be angered by her confrontation? By doing so, will this negatively impact her career?
Does she attempt to conduct educational “ESG 101” classes for supervisors and managers? They would be voluntary, so what if no one shows up?
Can she speak with the board of directors? If so, will they be receptive?
What if management views Judith as an idealistic whistleblower who doesn’t know or accept how ESG can be gamed?
Should she quit her position at GGA due to the risk that pushing for better ESG performance might set back her career?
Should she adopt a pragmatic, incremental approach for achieving ESG-related “small wins” to convince doubters of the positive impacts of ESG on company reputation and valuation?
With the cold reception of ESG at the board level, how should Judith address negative ESG news? One of the largest ESG funds in the world, built by BlackRock on MSCI’s ESG data, collapsed in December 2021, losing 91 percent of its market capitalization. This news will fuel the skepticism of an already doubtful board of directors.
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