The Financialization of Civil Society Activism: Sustainable Finance, Non-Financial Disclosure and the Shrinking Space for Engagement

Table of Contents

1. Introduction: It’s time to deal with finance

2. Research context: The creation of the EU framework for non-financial reporting

3. Bargaining in the shadow of the directive: ESG and the opportunities for civil society’s activism

   1. Engaging, translating and promoting ESG

   2. Shareholder activism

   3. Leveraging the national transpositions of the EU directive

4. It’s finance, stupid!

5. Conclusions

6. References

Rethinking Non-Financial Reporting: A Blueprint for Structural Regulatory Changes

1. Beyond Non-Financial Reporting: A Blueprint for Deep Structural Regulatory Changes, by David Monciardini, https://doi.org/10.1515/ael-2020-0092.

2. Non-Financial Reporting & Corporate Governance: Explaining American Divergence & Its Implications of Disclosure Reform, by Virginia Harper Ho, https://doi.org/10.1515/ael-2019-0006.

3. The impact of climate change in the valuation of production assets via the IFRS framework – An exploratory qualitative comparative case study approach, by Rebecca Scholten, https://doi.org/10.1515/ael-2018-0032.

4. A country-comparative analysis of the transposition of the EU Non-Financial Directive an institutional approach by Selena Aureli, https://doi.org/10.1515/ael-2018-0047.

5. The Challenges of Assurance on Non-financial Reporting, by Amanda Ling Li Sonnerfeldt, https://doi.org/10.1515/ael-2018-0050.

6. Integrated reporting and sustainable corporate governance from European perspective, by Jukka Tapio Mähönen, https://doi.org/10.1515/ael-2018-0048.

7. Why ‘less is more’ in non-financial reporting initiatives: concreate steps towards supporting sustainability, by Georgina Tsagas, https://doi.org/10.1515/ael-2018-0045.

8. Planetary boundaries and corporate reporting the role of the conceptual basis of the corporation, by Andreas Jansson, https://doi.org/10.1515/ael-2018-0037.

9. The financialization of civil society activism: sustainable finance and the shrinking of bottom-up engagement, by Davide Cerrato, https://doi.org/10.1515/ael-2019-0006.

10. Paradise Lost Accounting Narratives Without Numbers, by Mario-Abela, https://doi.org/10.1515/ael-2019-0035.

1 Introduction: It’s time to deal with finance

On September 29, 2014 the European Parliament adopted Directive n. 95/2014, requiring certain large-scale European Union (EU) corporations to annually report on the Environmental, Social and Governance (ESG) impact of their activities, the so-called “non-financial performance” (European Parliament and Council, 2014). Through the medium of accounting, corporations are required to attribute a value (i. e. price tag) to the current, future and potential material impact on the environment and society, and to indicate how the structure of governance internalizes these non-financial risks and reduces the possibility of losses.

Rather than a mere descriptive exercise, the idea behind ESG accounting is that the reporting of financial relevant non-financial issues can have a long-term transformative impact on the practices of investors and corporations. On the one hand, investors would use ESG to assess corporate behavior and the future financial performance of companies, thus identifying those investments that pose a lower level of risk in the long term. On the other hand, corporation would have an incentive to improve their performances and become more financially attractive. For the European legislator, corporate actions had to be oriented towards more sustainable practices and a well-informed and transparent financial system would have been the leverage.

The adoption of the Directive was, in good measure, the result of the work of what has been defined as a “coalition of the unlikely” that included representatives of the responsible investment world, unions, non-governmental organizations (NGOs) and other civil society organizations (Monciardini, 2016; Monciardini & Conaldi, 2019). For the members of this unexpected alliance, the heuristic practices of accounting and reporting could give visibility to the otherwise silenced impacts of corporate activities and reduce the amount of ESG risk borne by investors, the world population and the planet.

Five centuries after Queen Isabella of Spain sent an accountant with Columbus to make sure that he accounted properly for the profit originating from the grabbing of the West Indies and their resources (Gow & Kells, 2018), accounting and reporting were put back at the center of the relationship between enterprises and the surrounding world, this time to make sure that companies would not turn a blind eye to it. However, the legal decision to promote financial and accounting lenses as an epistemological tool to understand and produce knowledge of the world may have repercussions that are hardly captured when discussing ESG.

Much ink has been spilled on the intellectual and technical background of ESG reporting. Similarly, academics from multiple disciplines have engaged with the intellectual and political processes that led to the establishment of the 2014 Directive on non-financial disclosure, as well as on its content and implications (Venturelli, Caputo, Leopizzi, & Pizzi, 2019). Similarly, authors have been engaging with the technical content of the directive and of the legislation that translates it to the national level (Muserra et al., 2019; Popescu & Banta, 2019: 13–14). Moreover, questions have been raised also on the meaning of ‘material impact’ of non-financial concerns, (Baumuller & Schaffhauser-Linzatti, 2019: 106; Gelmini et al., 2015), on the possibility to translate into accounting terms the concepts of environmental, social and governance, (Lovell & MacKenzie, 2011; Villiers & Mähönen, 2015) and on the implications that the new framework has for investors and companies, especially with regards to reporting on so-called “material” information (Baumuller & Schaffhauser-Linzatti, 2019: 106–109; Gelmini et al., 2015: 138). ^[1]

We are aware of the existing literature and recognizes the importance of a sophisticated and thorough assessment of the procedural characteristics of the new framework. However, we are interested in adopting a different perspective and in sharing some reflections on the relationship between ESG and civil society and, in particular, on the way in which the EU Directive and the notion of sustainable finance as a form of global governance may open or foreclose opportunities for civil society engagement.

The idea behind our intervention stems from our direct experience with actors of the third sector and from the EU High-Level Expert Group on Sustainable Finance’s recognition that “the need to disclose long-term sustainability activities and metrics is a very powerful tool for fostering internal debates, ensuring proper governance and helping to promote dialogue between management, the board and stakeholders” (High-Level Expert Group on Sustainable Finance, 2018: 24) and that the growth of green finance depends on the “growth of dialogue and consensus-building on green finance with other capital markets participants” (High-Level Expert Group on Sustainable Finance, 2018: 79).

In a context where the Directive and the EU framework on sustainable finance are presented as a space for confrontation and a leverage tool for Non-Governmental Organisations (NGOs), civil society, consumers’ associations, etc., we want to fill a gap in the existing literature and shed light on the nature of the opportunities and limits that characterize the participation of civil society as a non-financial and non-state member of the ‘coalition of the unlikely’ (Monciardini, 2016; Monciardini & Conaldi, 2019). The questions that animate our intervention are straightforward: did the Directive truly empower civil society by promoting its participation in the process of ideation? Are the Directive and the EU engagement with sustainable finance opening spaces of engagement and confrontation that contribute to a true transition into a socially and environmentally sustainable future? Is the encounter between the financial realm and civil society a real win-win in the best interest of future generations and the planet?

In the sections that follow, we thus look at the EU Directive on non-financial disclosure and the EU framework on sustainable finance through the lenses of non-governmental organizations, environmental movements and individuals – such as the authors – who are interested in constructing a just and sustainable economy that preserves the regenerative capacity of the planet and contributes to the achievement of fair living conditions for everyone (Raworth, 2017). We start with a presentation of the research context and a short reconstruction of the convergence of different interests behind the ESG discussion and the idea of civil society as one of the three pillars of the EU Directive on non-financial disclosure. Then we adopt the point of view of NGOs and civil society activists interested in socio-environmental sustainability to introduce three opportunities of engagement and political negotiation that operate in the ‘shadow of the EU Directive’ (Mnookin & Kornhuaser, 1979) and that could be relevant in campaigning for a more sustainable future: engaging with the content and processes of ESG; triggering shareholder activism; leveraging the national transposition of the EU Directive. Shifting from the practice of engagement to the broader context that characterizes the notion of non-financial reporting, we conclude with some critical reflections on what is gained and what is lost when civil society sits around the same table as financial institutions, uses their vocabulary and accepts that the conversation can only happen around those social and environmental causes that are financially relevant (e. g. material).

2 Research context: The creation of the EU framework for non-financial reporting

The discussion around the integration of non-financial elements into corporate auditing and reporting and whether they should be considered by financial investors has a long history. According to Carroll and Beiler, “[t]he social audit as a concept for monitoring, appraising, and measuring the social performance of business dates back at least to 1940” (Carroll & Beiler, 1975: 589) when Theodore J. Kreps, then Professor of Business Economics at Stanford University, published a monograph entitled ‘Measurement of the Social Performance of Business’ which was based on the assumption that:

There is no doubt, for example, that the American people want their economic system of free enterprise to promote (1) the growth, health, and education of the population; (2) resourcefulness and invention; (3) the democratization of business organization; (4) reason and effectiveness in labor organizations; (5) international peace; (6) the enlargement of individual liberty; (7) increased opportunity for each individual to develop to the full all his intellectual, aesthetic, spiritual, and economic capacities (Carroll & Beiler, 1975: 591).

In the decades that followed the end of the Second World War, managers, academics and policy makers in Western Europe and North America developed the concepts proposed by Kreps and began tinkering with the idea of ‘new directions in the investment and control of pension funds’ (Gray, 1983) that would not only deal with the social impact of businesses, but with the triple bottom line of economic prosperity, environmental protection and social equity (Elkington, 1998). Yet, in a quick reversal of this trend, the end of the Cold War and the victory of neoliberalism in the battle for global ideas inverted the trend and sidelined two of the three in favor of a valuation of companies and assets based exclusively on the pure bottom line of financial performance. With the end of the 90s and the growth of global discontent with the way in which globalization had been conducted (Stiglitz, 2002), a led to the lunch of new international initiatives aimed at fostering the convergence between capitalism, planet and society.

For example, the United Nations U.N. Global Compact was inaugurated in 2000, having as its primary goal to bring companies together with other stakeholders and “advance responsible corporate citizenship so that business can be part of the solution to the challenges of globalisation” (Annan, 2002). Similarly, in June 2004 a group of 20 financial institutions with combined assets under management of over US$6 trillion published and publicly endorsed a report facilitated by the International Financial Corporation (IFC) entitled ‘Who Cares Wins: Connecting Financial Markets to a Changing World’ ^[2] with the intention to increase awareness of the integration of ESG factors in financial analysis and start an in-depth dialogue with the key stakeholders mentioned in this report, including investors, companies, regulators, stock exchanges, accountants, consultants, and NGOs (Global Compact, 2004: viii). For the Head of the Human Security Division within the Swiss Department of Foreign Affairs, the IFC-led process represented a “’neutral’ space where cooperation, joint learning and sharing perspectives to advance current thinking are possible” (Global Compact, 2004: iii).

When the global financial crisis hit in 2008, the loss in confidence and the disbelief in the global financial system quickly spread across geographies and sectors of the society. From Zuccotti Park in New York to the squares of the Arab Spring, politicians and the general public started raising their voices against the way in which idiosyncratic decisions made by a tiny minority of individuals had deprived people of homes and jobs, affected the price of food, increased inequality and moved whole countries to the verge of collapse. For millions of people around the world, the culprits of the financial meltdown were well-known: they worked in Wall Street, the City of London and other financial centers of the world. Regulators were ready to intervene. In 2010, the Dodd-Frank Act was issued in the US, while in the 2009 the UK Financial Services Authority’s (FSA) Turner Review was commissioned to consider a regulatory response to the global banking crisis (Financial Services Authority, 2009) and reached the agreement that:

the crisis … raises important questions about the intellectual assumptions on which previous regulatory approaches have largely been built. At the core of these assumptions has been the theory of efficient and rational markets … these assumptions [are] now subject to extensive challenge on both theoretical and empirical grounds, with potential implications for the appropriate design of regulation and for the role of regulatory authorities (Financial Services Authority, 2009: 39).

At a time where European and North American regulators were increasingly interested in curbing finance and in redressing the failures of self-regulation, the ideas of sustainable finance and the reporting of Environmental Social and Governance (ESG) issues were revamped as a politically and economically acceptable reform. In the words of the EU High-Level Expert Group on Sustainable Finance, “in the aftermath of the financial and sovereign debt crises, sustainable finance provides a unique opportunity for the EU to re-orient its financial system from short-term stabilisation to long-term impact” (High-Level Expert Group on Sustainable Finance, 2018: 9).

Under the presidency of José Barroso, DG Enterprise hosted the EU workshop on ESG Disclosure, which took place between September 2009 and February 2010. The event might be considered the first instance in which the European Commission created an institutional space to discuss to the topic of the socio-environmental impact of finance. Remarkably, this space was made accessible to different stakeholders, not only investors and business representatives (European Commission, 2009). Going beyond the boundaries of technical self-regulation traced by the IFC in the early 2000, ESG disclosure was presented in the EU as an opportunity for cross-sectorial dialogue and convergence beyond the specificity of financial jargon and pure technique. In the words of the European Commission, ESG disclosure was presented as “a political issue not just a technical issue. Tinkering is not a political message” (Commission of the European Communities, 2009).

Inspired by the principles of regulatory ‘smart mix’, ^[3] the plan of the European Commission behind ESG Disclosure was to combine the best of private governance and hard law: “the flexibility, dynamism, innovativeness, reflexivity and adaptability of voluntary market-based solutions and the authoritativeness, scope, and binding force of legal regulation” (Kinderman, 2016: 29). Despite the focus on corporations and financial actors, the idea that civil society and the third sector constituted one of the pillars of the new system of governance introduced by the Directive was already evident in the first proposal for ESG disclosure, dated 2013.

In the document, the Commission reported that:

enhanced transparency may help companies to better manage non-financial risks and opportunities, and thus improve their non-financial performance. At the same time, non- financial information is used by civil society organisations and local communities to assess the impact and risks related to the operations of a company. Moreover, it allows investors to take better account of sustainability considerations and long-term performance (European Commission, 2013: 2).

Yet, what space did they have in the negotiation and the definition of the content of the Directive and to what extent were they capable of counterbalancing the pressure exercised by the private sector? Moreover, did the Directive going to recognize civil society’s calls for more regulation, increased accountability and democratic control of the operations of corporations and finance? As reported by Kinderman (2015), unions and NGOs such as the European Coalition for Corporate Justice, the European Trade Union Confederation, and the European Consumers Organization (European Trade Union Confederation, 2014), participated in the negotiations of the Directive along with business representatives ^[4] and investors. ^[5]

When the final text of the Directive was released, it became clear that the Directive lacked any regulatory action aimed at increasing companies’ accountability for the production of ESG externalities (Howitt, 2014) or mandatory requirements beyond the duty to disclose non-financial information considered to be financially relevant (Monciardini, 2016; Monciardini & Conaldi, 2019). ^[6] For several NGOs and civil society actors operating in the area of Responsible Investment who expected the Directive to seize the political window opened by the crisis, it felt like a lost opportunity.

Outweighed in lobbying capacity and without the strong support of Member States, actors such as CSR Europe that had envisaged the possibility of nudging the EU dialogue towards a stricter approach to finance, could only mitigate the counteractions of business organisations and the desire of states to water down the content of the Directive (European Coalition for Corporate Justice 4; Eurosif, 2014; BDA et al., 2011). Yet, the legal genealogy of the EU Directive and the scarce impact of the third-sector should not come as a surprise as it does not depart from previous EU financial initiatives where the power of the industry sector in lobbying and shaping the public discourse was also linked to reform debates that were attended unevenly.

As we discuss in the next section, despite the lack of courage and the compromising nature of the Directive, we believe that the intervention may have created some new spaces and maintained some existing opportunities for civil society engagement. However, in Section 3 we also offer a different perspective based on the strategic and political impact that the Directive has been having in re-defining the relationship between financial, social and environmental sustainability. What happens to the third sector and its practices, we ask, when the decision is taken to confront financial capitalism in its own arena of accounting, reporting, assessing, return on the investment, future projections and discounting?

3 Bargaining in the shadow of the directive: ESG and the opportunities for civil society’s activism

In September 2018, the European Coalition for Corporate Justice, one of the NGOs involved in campaigning for the Directive, published a review of the European Non-Financial Reporting system highlighting a series of weaknesses. The framework, they concluded, lacks a system of mandatory disclosure of company suppliers’ lists and subsidiaries, needs the introduction of mandatory and standardised Human Rights Due Diligence, would be strengthened by the expansion of the scope of the Directive to include private companies (currently reporting is only required of public-listed companies) and, as will later be analysed, would benefit from the introduction of meaningful sanctions for companies that fail to reveal relevant and material non-financial information in compliance with the Directive (European Coalition for Corporate Justice, 2018).

If we take the report as a starting point for our assessment of the Directive, we can conclude that the main problem with the Directive lies in the lack of teeth, it’s the partial application and the absence of a uniform system of ESG accounting and assessment. In a nutshell, the report suggests that the Directive is not really capable of forcing any transformation in the economy and that the improvements are left to the exercise of power and counter-power between investors and companies. Thus, the focus of the report is the role of institutional investors in acting as stewardship of the economy, a topic that has been amply discussed in academic literature and often criticized (Talbot, 2013; Villiers, 2010).

Although it is clear that the main beneficiaries of the Directive are the investors who are required by law to be provided ESG information to account for long-term sustainability of their investments and for the hidden non-financial risks, we believe that it is important to broaden the conversation to the space that the Directive opens to non-governmental actors all over the world and to the impact that the third sector’s involvement with ESG accounting may have. As a matter of fact, not enough has been written on civil society organizations’ engagement with sustainable finance and – in particular – with the most recent European framework.

In the next sub-sections, we present a brief overview of those that we consider to be the three main opportunities that the current scheme of the European Directive opens to civil society actors (both organizations and individuals). In a political context where non-financial disclosure, transparency and the re-allocation of financial capital towards sustainable projects are seen as needed and inevitable, we asked how civil society can use the ESG spaces to push for an improvement of the economy and whether the Directive had opened any new opportunity. Using the idea of ‘bargaining in the shadow of the law’ proposed by Mnookin and Kornhauser in 1979, we consider the Directive a regulatory tree under the shadow of which a continuous bargaining takes place between civil society organisations, NGOs, financial institutions, corporations, states and other interested parties (Mnookin & Kornhauser, 1979: 952).

The opportunities, tools and outcomes that arise from the interactions that take place under the tree – whether they are peaceful or not – are not natural, fixed or inevitable. On the contrary, they depend on the shape of the tree, the number and disposition of the branches, and on contingent elements like the time of the day and the presence of clouds (which, in our case, could represent the political and cultural context in which the negotiation is embedded). Clearly, the struggle for social and environmental objectives takes place more in a legislative and regulatory forest rather than under one tree. Therefore, the possibilities of engagement and active participation also depend on elements (legal, political, cultural, etc.) that are external to the Directive or have little to do with the Directive – we can think of the role of the Paris Agreement, the National Climate Action Plans, tort and criminal law, etc. Yet, the Directive can be interpreted as a new tree in the wood whose presence redefines the space for engagement and introduces new branches that should not be dismissed.

4 It’s finance, stupid!

Ten years after finance dragged the world into a new Great Recession, the level of trust in financial capital as a pillar of a sustainable transition has never been higher. In the words of the EU High-Level Expert Group on Sustainable Finance, established by the European Commission: “Sustainability is the theme of our time – and the financial system has a key role to play in delivering the set of ambitions” (HLEG, 2018). The 2014 Directive, the assessment of non-financial information, the disclosure of ESG, the construction of a taxonomy to facilitate the identification of sustainable investments and the consolidation of a market for green bonds are just few of the steps taken in the direction of a stronger synergy between the financial world and the areas of environmental and social sustainability there were traditionally organized by states and civil society. As an example, when asked if their work made them activists, a representative of a company providing analysis of ESG fund proxy voting trends replied “The word I prefer is ‘investor advocate’ – You’re advocating for your own investments” (Velasquez-Manoff, 2016).

If the pathways of governments and financiers are converging, some representatives of international and regional civil society have jumped on the bandwagon of ESG trying to directly engage with sustainable finance through one (or more) of the three opportunities that we discussed in the previous section (i. e. translating and promoting ESG; shareholder activism; leveraging the national legal framework). Talks around the financial materiality of the environment, society and governance are becoming more common among the third sector, as if engaging with finance was another arrow in the quiver. Despite the diffused ESG-excitement and the new spaces of contestation, we believe that there are several reasons why the financialization of civil society should not be perceived as a neutral operation that strengthen the actors who engage with it, but rather a game changer in the way people and planet are conceived and their needs manifested. As a matter of fact, endorsing ESG as the integration of the world into the financial mechanisms means at least three things: (a) the legitimation and reproduction of the idea that it is possible to draw a line between financial capitalism on the one hand and people and planet on the other hand; (b) the exclusion of all those conditions that cannot be expressed in financial terms; (c) the over-simplification of complex instances in order to represent them in financially acceptable terms.

If everything must be financially material, everything needs to be expressed in terms of return, risk, figures and excel sheets. But can this happen with everything and what happens when this translation takes place? Echoing the old adage that ‘you cannot manage what you do not measure’, Helm argues that ”what is measured tends to be what matters” (2015: 79). However, how much value can be given to a glacier for a person who has lived their entire life close to it, using the water melting from it? How much monetary value can be attributed to the opportunity to venerate one’s ancestors in the place where they have lived, if one’s religion so requires? How can the risk of losing these intangible values be monetised if this loss does not lead to legal actions or any compensation? In addition, while this is not the place for a lengthy discussion about the pros and cons of the notion of ‘natural capital’, suffice to say that the idea has been criticised for a number of reasons including the fact that “diversities are lost the world-making mission to fashion and fabricate the entire plane as an abstracted plane of (ac)countable, monetizable and potentially substitutable natural capital” (Sullivan 2017: 398). Are civil society organisations and NGOs ready to give a price tag to people and nature and stop campaigning for what cannot be properly accounted for or is not financially material?

The paradigm of sustainable finance as a specific way of accounting for the world can only be structured in a way that narrows down the perspective and the possibilities of engagement with the complexity of financial capitalism as a form of organizing nature and the environment that is interdependent, complex and spatially and chronologically multi-layered. The implementation of ESG is obtained through the adoption of a system of measuring, a set of standards, technologies and accounting practices that defines how the world is interpreted, read and represented. Different mechanisms are available and different procedures can be adopted. However, to quote De Angelis, “How do we measure what we measure? Who or what sets the standard for the measurement? What forms of measurement are used in different discourses? What powers have been deployed and/or repressed with this measuring process? And what loops articulate human practice to practices of measures?” (De Angelis, 2009: 79).

From the point of view of civil society and non-financial actors, ESG reporting appears an over-financialization of the environment, society and governance, a potentially (if not already) self-referential imaginary that can only reproduce the fallacies of finance as based on the projection of the present into the future and of the future into today’s investing decisions. Created by financiers for financiers, the ESG framework endorsed by the EU Directive on non-financial disclosures never had any disruptive potential because it was created to help finance reproduce itself rather than withering away. In this framework, the sole opportunity for civil society who sees finance as an opportunity is to learn the vocabulary of finance to reimagine the world around the financial/non-financial dichotomy and elaborate campaigns that fits with the vocabulary of finance and financiers. The dominant language and the dominant form of considering value are legitimized and supported by the same actors that years ago were challenging the existence of finance and this leads to the assimilation of marginalization of alternative visions.

As De Angelis wrote with regards to the idea of global value chains: “Unless the different value practices posited by these movements are able to waive themselves into self-sustaining social feedback processes that are alternative to the parametric centre of capital’s value mechanism and correspondent mode of relations, these struggles risk to be either repressed or assimilated into capitalist evolving forms” (2009: 69). However, neither the EU Directive nor the system of multi-stakeholder platforms provide spaces to challenge the vocabulary or the vision: on the contrary, they are clubs composed by actors who are already embedded in the system and in its procedures, where vocabulary and taxonomy exist (or are currently created) to facilitate investors and their decisions, i. e. integrating ‘external’ elements into a pre-determined and consolidated way of representing the world.

Even when cases and actions are brought on the basis of the risk that investment decisions pose to the future of the planet, like in the case of Shell’s pensioner or the ShareAction campaigns, ESG considerations force the claimant to make a connection between individual motivations (maximization of future share value and disclosure or material financial risk that may affect the financial resilience of the fund) and the common good of stopping climate change or producing an equal society. Stranded assets and pollution are not challenged because of the violations that are associated, but because of the potential reduction in the pensions and the financial certainty of the members. Violations of human rights and modern slavery are not criticized because they are inherently contrary to the world that we want to create, but because involvement with them may lead to a reputational damage or lawsuits. Moreover, the centrality of the corporate form in the economy is normalized and made inevitable, with citizens and activists nudged into thinking that the only way to saving the planet is to prove that it can also rewards shareholders. What about injustices that are not perceived as such to affect the value of a share? What about environmental disasters that will not lead to lawsuits and compensations? What about the vision of the majority of the world, who has no investments and whose life has been affected by unsustainable financial practices?

Instead of opening opportunities, the adoption of the non-financial Directive and the financialization of civil society activism is reducing the horizon of imagination and homogenizing the way in which the mind interacts with the environment and society – what Guattari would call the mental ecology (Guattari, 1989). We should not be surprised. However, we believe that the role of civil society should be that of de-financialising ESG and pushing for spaces where people have control over the vocabulary and the procedures, where they can hold corporations and investors accountable for their actions rather than providing advice on their future investments and where the distinction between financial and non-financial is challenged. If struggles for a just and ecological future do not want to be repressed or assimilated, their proponents should be focusing on the vocabulary that they use and on framework in which they operate. Are we ready to accept that the survival of planet and people will be discussed in investment houses and that the future of the world depends on the capacity to convince ‘white men in a suit’ that the collective interest behind the defence of pandas, glaciers or people in condition of slavery is functional to the financial performance of their portfolios. Is it a truly sustainable way of fighting for sustainability?

In a more general sense, ESG seems to be following the destiny of another potentially transformative concept: Corporate Social Responsibility. After a slow growth since its creation in the 1960s as a mix form of governance, the idea of CSR has eventually become what De Schutter defined as “a process in which the representatives of the business community have come to occupy the main role, and whose purpose is to promote learning among business organisations” (2008). Along the years, lawyers, financial analysts and accountants “intruded” the field of CSR reporting and increasingly defined the way in which civil society and the third sector assessed and engaged with corporate activities (Monciardini et al., 2017: 19). In a similar manner, the representatives of the Socially Responsible Investment and Green Finance networks have in many occasions directed their efforts to promote ESG as a powerful business strategy aimed at differentiation and competitiveness rather than a possible form of control and governance exercised in combination by state regulators, civil society organization and financial actors (Richardson, 2015).

Although not surprisingly, this reminds us of the importance to look behind labels and generalizations, so to better perceive power dynamics, imbalances and the risks that lie behind initiatives that are presented as neutral, open and egalitarian. In addition, it would be a mistake to believe that there is one uniform and homogenous civil society only and that there is only one way for civil society to engage with ESG. For example, civil society’s participation to the High-Level Expert Group on Sustainable Finance (HLEG) and the Technical Expert Group – two of the multi-stakeholder initiatives presented by the European Union as a collective space to define the EU Sustainable Finance Agenda, appears to be based on financial legitimacy and alignment, i. e. on the recognition that civil society can work within the intellectual and political framework of finance as a central player in the construction of a sustainable future.

With few exceptions that should be tested in the context of the actual interactions within the expert groups, civil society is allowed to participate if it shares the premises and objectives of the financial sector. If this is the premise, the space of political imagination has already been defined and the boundaries set. The discussion will not any more about the role that finance played in creating the unsustainable present or the desirability of a financialized future for Europe, but on how global financial capital can best be involved in the transition into a rentable – but more sustainable – future.

5 Conclusions

On September 29, 2014 the European Parliament adopted Directive n. 95/2014, requiring certain European Union (EU) companies to report on their so-called “non-financial performance.” The legislative framework, which has been now adopted by all Member States, was presented as the work of a ‘coalition of the unlikely’ made of financiers, NGOs and unions (Monciardini, 2016; Monciardini & Conaldi, 2019) and an opportunity to change the status quo without a radical intervention. In the continuous dance between regulation and deregulation, the Directive integrates Environmental, Social and Governance (ESG) issues in the process of corporate accounting and reporting, offering a politically and economically acceptable compromise between conflicting positions: it recognizes that financial capital has a role to play in making the world (and the economy), but that financiers must be helped in making decisions that are not fully idiosyncratic.

Since its inception, the ESG space was presented as an opportunity for cross-sectorial dialogue and convergence beyond the specificity of financial jargon and pure technical objectives to be achieved every quarter. In this context, this paper has shed light on the opportunities and limits that characterize the participation of civil society as a non-financial and non-state member of the coalition of the unlikely. The questions that animated our intervention and that we have unpacked with the adoption of a critical approach to law in context, were straightforward but complex: is the Directive truly empowering civil society? Is the encounter between the financial realm and civil society a real win-win in the best interest of future generations and the planet?

After a short reconstruction of the ESG discussion and the way in which it was presented as a convergence of different interests, in Section 2 we have discussed the three main opportunities that the current framework provides to civil society actors who are interested in engaging with sustainable finance: a) acting as ESG intermediaries and ESG accountants; b) engaging with shareholders and convincing them of the importance of considering ESG issues in their investment strategies to guarantee the long-term resilience of their portfolio; c) leveraging national legislations, in particular in those countries that have introduced sanctions for the breach of the disclosure obligations contained in the Directive 95/2014. For each of these options, we have offered examples and discussed the potential, convinced of the importance of supporting the actions and the commitment of civil society actors who want to engage with finance and occupy a space in the current ESG framework. Yet, the more we engaged with the different possibilities the more we realized that something else should have been said beyond their existence and effectiveness: entering into the realm of civil society appeared to financialise civil society itself.

Finally, in Section 3 we have offered a critical engagement with the underlying assumptions of ESG disclosure and sustainable finance as opportunities for civil society engagement and transformation of the global economy. Ten years after the failure of Lehman Brothers and the turmoil that followed the collapse of financialised capitalism, non-financial disclosure and sustainable finance are far from providing a truly open and accessible space that recognizes and counterbalances the power differences existing among the members of the coalition of the unlikely. Because the core of sustainable finance is what is ‘financially material’ rather than what is environmentally or socially needed, the words, paradigms and horizon of finance represent the normalized axes around which the other actors can operate. Everything else is kept outside, invisible to investors and therefore irrelevant. In this context, we wonder if social and environmental movements (NGOs, civil society, charities, individuals, etc.) should continue operating within the system or, on the contrary, they should step outside and deploy different tools. If the final goal is that of an economy that respects the regenerative character of the planet and tackles socio-economic inequality, three different opportunities come to mind with regards to ESG and sustainable finance. However, the only limit to the identification of new tactics is the lack of imagination.

Firstly, civil society who has opted to work within the system could decide to ‘fight fire with fire’. However, this would not be to act as ‘accountants’ or ‘financial advisors’ for investors and companies – we believe that financial capital has enough resources to pay for-profit experts to do the job – but rather leveraging hard law to push for deep transformations. In this context, we believe that national implementation laws, and in particular those that introduce sanctions for non-compliance, may be seen as ‘legal chokeholds’ (Ferrando, 2017) that can at least slow down the uninterrupted flux of capital to unsustainable activities and restore the centrality of accountability. With all the limits that derive from the technicality of the issue, civil society could partner with national legislators and give teeth to ESG constraints. However, how can it do it if the national authorities do not provide it with accessible and reliable grievance mechanisms and a strong and unified system of sanctions? Hardly anything. In which case the ball is in the law-markers’ court and in the possibility of a new and more democratic process around the national transposition of the Directive. However, can policymakers and law-makers be trusted more than financiers in protecting sustainability in the absence of financial literacy and public participation?

Alternatively, civil society may decide to burst the bubble of financial sustainability and de-financialise the environment and society. The decision to work outside and against finance has been already made by large chunks of civil society, in particular by grass-roots organizations and bottom-up movements like La Via Campesina, the groups that have endorsed the Nyeleni Declaration on food sovereignty and the millions of people who gathered around the Occupy movements. If the financialization of the environment (the planet as natural capital and the exploitation of nature as a way of generating profit) and the financialization of society (debt, mortgages, privatization of health care and restructuring of the global labour market in order to increase financial returns) are responsible for the ecological collapse that we are witnessing, the inherent tension behind sustainable finance and ESG disclosure appears evident. However, although a large part of global civil society has recognized the need to move away from the financial paradigm, the increasing request for financial expertise in order to join the third sector shows that a number of organizations are moving in the opposite direction. Hopefully, our contribution can help shed some light on the tradeoff that exists when the logic of finance is internalized and its paradigm deployed to solve the problems that finance has contributed to generate.