What controversies tell us about companies’ commitments?

Between 2018 and 2020, assets managed in so-called "sustainable" or "socially responsible" funds increased by 15% worldwide. Norm-based exclusion is a historic sustainable investment strategy, particularly widespread in Europe. It is based on international standards that define what responsible business practices should be for companies, particularly in terms of respect for human rights, the environment and business ethics. Commonly used standards include the principles of the United Nations Global Compact and the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises.

In light of recent developments, such as the update of the OECD Guidelines in June 2023 and the implementation of the European Union's regulatory agenda on sustainable finance, this study aims to provide readers with an overview of how the monitoring of ESG (Environment, Social, Governance) controversies can help measure the alignment of corporate practices with the recommendations of international standards.

This study first provides an overview of the regulatory framework for sustainable finance in Europe and how normative exclusions fit into this ecosystem. It then explains how tracking ESG controversies can help investors monitor their portfolio companies' compliance with international standards. Finally, it presents case studies drawn from the EthiFinance ESG Ratings controversy database, including data on the most exposed sectors and the main reasons for non-compliance with the Global Compact principles and OECD guidelines.