Editorial 1 : A better do-good metric
Introduction: ESG (Environmental, Social, and Governance) as a crucial factor for businesses today. It considers a company's impact on the environment, its social responsibility, and its governance practices. ESG performance is now measured and ranked, impacting a company's ability to attract investment and manage risk. Companies, especially in polluting industries, are striving to improve their ESG credentials.
How did the ESG concept come into existence?
- This blended concept of ESG is now around two decades old, having been launched in an UN-led report of 2005, titled ‘Who Cares Wins: Connecting Financial Markets to a Changing World’, which enjoined financial institutions, investors, and regulators to work together for promoting sustainable environmental, social, and good governance practices in companies.
- Today, the ESG approach is embedded in the heart of the global corporate landscape, with ESG-infused sustainable investments amounting to more than a third of all invested assets worldwide as per the Global Sustainable Investment Review, 2022.
How are the ESG credentials of a firm measured?
- Measuring ESG credentials is now a thriving global industry, with the many reporting frameworks using a bewildering array of metrics to measure and rank companies.
- The absence of uniformity and the element of subjectivity in ESG evaluation criteria detract from its credibility, with ESG ratings by different agencies tallying with each other only about half the time as per reports.
- The prospect of having well-defined and standardised evaluation metrics seems a long way off, on account of the sheer variety of factors involved.
- The world’s biggest asset management firm, BlackRock has abandoned the ESG acronym, taking the view that “ESG is unquestionably in a death spiral” as per a report.
Problems with Single Materiality in ESG Ratings
Focus on Risk, Not Impact
- Current ESG ratings mainly assess how environmental and social issues affect companies (single materiality).
- This creates hypocrisy as companies appear to prioritize financial well-being over positive environmental and social impact.
Double Materiality Challenges
- Europe's "double materiality" approach aims to measure a company's external impact, but faces difficulties in accurately capturing and measuring these effects.
Inconsistent Rankings
- Examples exist where companies with positive environmental actions (like Tesla) rank lower than those with higher environmental impact (like Exxon Mobil) due to social and governance factors.
Avoiding Hard Decisions
- Focusing solely on ESG as a metric might distract from taking tougher actions needed to address major issues like climate change and inequality.
Limited Comparability
- Combining Environmental, Social, and Governance factors creates challenges in comparing companies across industries.
Proposed Solution:
Prioritize Emissions Reduction
- Focus ESG efforts primarily on reducing environmental impact, especially emissions, with separate evaluations for social and governance aspects.
- This improves clarity and targets the most pressing issue.
Conclusion: It is time that we went back to the drawing board and unbundled the ESG matrix, reducing its scope and complexity, so that we can measure better, and focus on critical essentials like emission reductions that are now mandatory for our survival.
Editorial 2 : Recasting the battle within
Introduction: Iranian authorities have confirmed the death of President Ebrahim Raisi in a helicopter crash on May 19 in the mountainous region in the northwest of the country bordering Azerbaijan. Raisi was going to Tabriz after Azerbaijan President Ilham Aliyev and he inaugurated the Qiz Qalasi dam, jointly built by the two countries, on the Aras River.
Aftermaths of the Death of President
Appointment of Interim President:
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- Supreme Leader Ayatollah Ali Khamenei swiftly appointed First Vice-President Mohammad Mokhber as interim president.
- This action aligns with the Iranian constitution.
- Purpose of the Swift Appointment:
- To assure the distressed Iranian nation.
- To signal to the world Iran's capability to absorb shocks and continue government operations smoothly.
- Anticipated Questions and Speculations:
- Questions will arise about the reasons for the incident leading to the interim appointment.
- An enquiry commission is expected to be appointed.
- Speculations on Foreign Involvement:
- Popular speculation may link Iran’s enemies to the incident.
- Israeli media reported government sources denying involvement.
- Iranian authorities have not accused any foreign power as of now but may do so if domestic pressures demand.
- Implications for the Region:
- Potential accusations against foreign powers could complicate the regional situation.
- The region is already tense due to ongoing operations in Gaza by Israel.
Iran’s political System
- It will be useful to place the position of president within the Iranian system in perspective.
- There is no doubt that the final authority on all matters in Iran is the Supreme Leader.
- The president is elected by the people from among candidates who are allowed to contest the election by the Guardian Council.
- However, his powers are circumscribed — the Supreme Leader has a decisive veto.
- Since Iran’s Islamic Revolution, there have been only two clerics to hold that position.
- The first was Ayatollah Ruhollah Khomeini, who established the doctrine of the Vilayat-e-Faqih (Rule of the Jurisprudent) and led the Islamic Revolution that overthrew the Shah in 1979.
- He was the undisputed master of Iran till his death in June 1989.
- He was succeeded by Ali Khamenei who has controlled Iran’s destiny since then.
- Khamenei has had big shoes to fill and it has taken him time to do so.
- Even then, he has never had Khomeini’s heft and hence, has had to sense the popular mood even while trying to mould it.
- This exercise has resulted in his bending with the wind when required to allow pragmatist clerics — as distinct from hardliners — to contest and “win” elections.
- Presidents Khatami (1997-2005) and Rouhani (2013-2021) would come in this category.
USA’s pressure and decline in pragmatistic leadership in Iran
- Former US President Donald Trump’s decision to withdraw from the nuclear deal dealt a severe blow to the pragmatists.
- Consequently, the hardliners gradually overshadowed the pragmatists.
- The former were opposed to not only the deal but were also in favour of maintaining the purity of the Revolution, including on gender issues.
- They also favoured the pursuit of an assertive policy in the region.
- They began, with the tacit blessing of the Supreme Leader, to fill positions in the councils which vetted those who wished to contest elections to legislative bodies and executive offices.
Few things about President Raisi
- Raisi who had occupied judicial offices and was known to freely hand down harsh sentences, including capital punishment, became the hardliners’ choice to be the President in 2021.
- He easily won the election and has pursued the hardliners’ agenda since assuming office.
- Prior to his election and to an extent after that too, some thought that when the time came, he may succeed Khamenei who is now 85 years old.
What will happen in Iran now?
- Under the Iranian constitution, a new President will have to be elected within 50 days of Raisi’s death.
- It is doubtful if Khamenei and the Guardian Council will allow a pragmatist to contest, let alone win, the presidential election.
- The Revolutionary Guard is the Supreme Leader’s praetorian force and is committed to safeguarding the ideals of the Revolution.
- It will also favour continuity through the election of a hardliner.
- It is difficult to discern at this time who will be chosen by the hardline forces, with Khamenei’s blessing, as the next President.
- On most occasions in the past, an unexpected figure emerged who took office after being cleared to contest the election. This time may not be different.
Iran’s geopolitical struggles and relations with world
- Iran continues to struggle under Western sanctions.
- It has gradually, but strongly, moved into the Russo-Sino orbit especially since Trump ended the nuclear deal.
- That process will not be impeded by Raisi’s death.
- Iran had also launched a missile attack against Israel in response to the latter’s attack on the Iranian embassy complex in Damascus, which resulted in the death of Reza Zahedi, a senior Revolutionary Guard officer.
- However, both countries took care that the situation did not escalate to a point of no return.
- For the foreseeable future, despite their intense enmity and Iran’s full support to Hamas and other anti-Israeli groups, both will take care that their actions do not spill over into all-out war.
- The Biden administration and the Chinese too will restrain both sides.
- The traditional unease between Iran and the Arab states will continue despite the seeming rapprochement between Iran and Saudi Arabia.
India and Iran relations going forward
- While Raisi is gone and a new President will take over within the next couple of months, Iran’s domestic and foreign orientations, including towards South Asia, are unlikely to change.
- Thus, Iranian support to India on the Chabahar port is not going to be endangered.
- However, Raisi recently visited Pakistan to balance its South Asian policy and a new President will follow that course too.
Conclusion: President Raisi’s death is likely to reopen a succession tussle between hardliners and pragmatists in the country. The real crunch in Iran will come when a vacancy arises in the Supreme Leader’s office.