ESG as a tool of economic protectionism

The ESG criteria (environment, 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 growing debate about how these criteria can be used as justification for protectionist measures by countries or economic blocs.

ESG has 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 parameter for risk assessment and long-term performance.

However, as ESG standards consolidate, concerns arise about their uneven application across countries, especially between developed and emerging economies. The lack of uniformity in the criteria can create disguised trade barriers, creating a competitive disadvantage for companies in countries with greater capacity to adapt to ESG requirements.

To give you an idea, a report by the World Trade Organization (WTO), revealed an increase in the growth of protectionist measures of the countries that make up the G20. In that year, the value of trade covered by import restrictions in force was estimated at approximately US$ 2 trillion, representing 9.4% of world imports.In addition, the restrictions covered in one year an estimated value of US$ 230.8 billion of goods exports, which represents 0.9% of exports worldwide.

Countries can use ESG environmental criteria to justify the imposition of trade barriers, such as tariffs and import restrictions, alleging environmental concerns. A recent example was the case of the Carrefour headquarters, which claimed environmental issues to prohibit the import of Mercosur meat to their supermarkets in France. The use of environmental criteria may have been an excuse for larger economic issues that have occurred in France, especially regarding local farmers, who need a lot of subsidy to keep their respective businesses running. So, the question remains: is it an environmental issue or economic protectionism?

Developing countries often struggle to meet ESG standards imposed by more advanced economies (this does not mean that these criteria are not essential for humanity). This can limit access to global markets if these countries do not make the necessary investments to meet the environmental criteria demanded. Raising the leash on ESG issues are very important and developing countries should take this seriously.

However, the use of environmental criteria as an excuse for non-commercialization happens as an economic and political tool to safeguard local production, especially when it cannot sustain itself, but depends on high subsidies to survive. This demonstrates that there is an artificial and unhealthy environment of economic niches in developed countries. Moreover, if the ESG criteria are perceived as protectionism tools, its legitimacy can be questioned. This can 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 harmonised global standards. Institutions such as the World Trade Organisation and the International Council on Integrated Reporting can play a central role in creating universal criteria that consider the economic realities of different countries.

While the ESG criteria represent a significant advance 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 harmonised 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 future of the planet.