ESG criteria (environmental, social, and governance) have gained global prominence as a set of guidelines for sustainable and socially responsible corporate practices. Despite their undeniable importance in promoting a more sustainable future, there is increasing debate about how these criteria can be used to justify protectionist measures by countries or economic blocs.
ESG emerged as a set of standards designed to assess business operations from a sustainable and ethical perspective. Companies that adopt ESG practices commit to minimizing environmental impacts, promoting social equality, and maintaining transparent governance. These criteria have been widely adopted by investors, governments, and financial institutions as a long-term risk and performance assessment parameter.
However, as ESG standards solidify, concerns arise about their uneven application across countries, especially between developed and emerging economies. The lack of uniformity in criteria can create disguised trade barriers, putting companies from countries with less capacity to adapt to ESG demands at a competitive disadvantage.
To give an idea, a report by the World Trade Organization (WTO) revealed an increase in protectionist measures among G20 countries. This year, the value of trade covered by active import restrictions was estimated at approximately $2 trillion, representing 9.4% of global imports. Moreover, the restrictions covered an estimated $230.8 billion in merchandise exports, representing 0.9% of global exports.
Countries may use ESG environmental criteria to justify imposing trade barriers, such as tariffs and import restrictions, citing environmental concerns. A recent example was the case of Carrefour, which cited environmental issues to block imports of Mercosur meat into its French supermarkets. The use of environmental criteria may have been an excuse for broader economic issues occurring in France, especially concerning local farmers who require substantial subsidies to keep their businesses running. So, the question remains: is this an environmental issue or economic protectionism?
Developing countries often struggle to meet ESG standards imposed by more advanced economies (this doesn’t mean these criteria aren’t essential for humanity). This may limit their access to global markets if these countries don’t make the necessary investments to meet the demanded environmental criteria. Raising the bar on ESG issues is very important, and developing countries should take this seriously.
However, using environmental criteria as an excuse to avoid trade serves as an economic and political tool to protect local production, especially when it cannot sustain itself alone but depends on high subsidies to survive. This demonstrates an artificial and unhealthy environment in developed countries’ economic niches. Moreover, if ESG criteria are perceived as protectionist tools, their legitimacy may be questioned. This could further discourage the adoption of sustainable practices in the long term.
To prevent the misuse of ESG as a protectionist tool, it’s crucial to develop harmonized global standards. Institutions like the World Trade Organization and the International Integrated Reporting Council can play a central role in creating universal criteria that consider the economic realities of different countries.
Although ESG criteria represent significant progress in the pursuit of more sustainable and responsible development (or rather, the planet’s very survival), their use as a protectionist tool poses risks to global trade and the credibility of ESG practices. By addressing these challenges through harmonized global standards and promoting international dialogue, we can mitigate negative impacts and ensure ESG remains a positive force for the planet’s future.
