ESG means fund managers must require companies to abandon their singularity of focus on shareholder returns (once contractual obligations have been met and laws and regulations honoured) in favour of allocating attention — and capital — to a diverse and disparate range of issues, including climate change, environmental degradation, community relations, human rights, labour welfare and diversity.

Implicit in this is a transfer — possibly unwitting — of a whole range of responsibilities from what was traditionally the purview of governments to that of corporations. And, piercing the veil of corporate agency, that really means the assignment of such authority to the corporation’s senior executive officers. Setting aside for now the desirability of delegating huge areas of environmental and social policy to an elite accountable only to their shareholders, this development creates a whole new set of challenges for investors.

While MSCI scores Facebook’s governance in the average range relative to peers (while noting concerns about executive pay and ownership structure), corporate behaviour ranks well below. If we are to gain a fuller understanding of a company’s approach to ESG (and cut through the greenwashing), we first need a holistic understanding of a company’s governance, which considers more qualitative and admittedly more subjective variables, and which focuses on deeds over words. We should examine how managements have actually treated other stakeholders in the past (at prior positions) and how governance structures channel their motivations.