ESG as a tool for economic protectionism

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 a growing 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 evaluate 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 parameter for assessing long-term risks and performance.

However, as ESG standards become more established, concerns are arising about their uneven application among countries, especially between developed and emerging economies. The lack of uniformity in criteria can create disguised trade barriers, generating a competitive disadvantage for companies from countries with less capacity to adapt to ESG requirements.

To provide context, a report by the World Trade Organization (WTO) revealed an increase in the growth of protectionist measures by G20 member countries. This year, the value of trade covered by existing import restrictions was estimated at approximately US$ 2 trillion, representing 9.4% of global imports. Furthermore, the restrictions covered an estimated value of US$ 230.8 billion in merchandise exports over one year, which represents 0.9% of global exports.

Countries may use environmental ESG criteria to justify imposing trade barriers, such as tariffs and import restrictions, citing environmental concerns. A recent example was the case of Carrefour's headquarters, which cited environmental issues to block the import of meat from Mercosur to its supermarkets in France. The use of environmental criteria may have been an excuse for larger economic issues occurring in France, particularly concerning local farmers, who require significant subsidies to keep their businesses operational. This raises the question: is it an environmental issue or economic protectionism?

Developing countries often face difficulties in meeting ESG standards imposed by more advanced economies (this does not mean these criteria are not essential for humanity). This can limit their access to global markets if these countries do not 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, the use of environmental criteria as an excuse to avoid trade occurs as an economic and political tool to protect local production, especially when it cannot sustain itself and depends on high subsidies to survive. This demonstrates the existence of an artificial and unhealthy environment in economic niches within developed countries. 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 is crucial to develop harmonized global standards. Institutions such as 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 a significant advancement in the pursuit of more sustainable and responsible development (or rather, the very survival of the planet), their instrumentalization as a protectionist tool poses risks to global trade and the credibility of ESG practices. By addressing these challenges through harmonized global standards and the promotion of international dialogues, it is possible to mitigate negative impacts and ensure that ESG continues to be a positive force for the planet's future.