Last month, S&P Global handed out sustainability awards to companies it deemed best in class for environmental, social and governance practices. Thailand’s Mitr Phol Sugar Corporation received a silver award in the global food products industry. For anyone following the decade-long struggle for justice by Cambodian farmers left destitute after being violently driven from their land for a Mitr Phol sugar plantation, this award was maddening.

Information on Mitr Phol’s role in gross human rights abuses is not hard to find or substantiate. It was confirmed in an investigation report by the Thai National Human Rights Commission, and is currently the subject of a high-profile class action lawsuit. Nonetheless, S&P gave the company a perfect score on human rights.

This kind of audacious greenwashing is not an anomaly. It has become a hallmark of the growing ESG investing industry and is bad news for the project to advance corporate respect for human rights.

ESG-labeled funds have exploded in popularity in recent years, hitting $3.9 trillion in assets under management last year. Driven by marketing claims that ESG is a way for investors to align their money with their values, it’s now the fastest growing sector of financial services.

But these funds are littered with companies with appalling records. Our organization, Inclusive Development International, specializes in following the money behind harmful corporate projects and we’ve been aghast at the amount of ESG investment flowing to companies linked to environmental devastation and rights violations around the world.

To better understand this problem, we investigated one particularly egregious example of corporate complicity in human rights abuses to see how it was handled by the ESG industry. Our research team analyzed the shareholdings of companies known to have equipped, funded and enabled the Myanmar military, which the UN has accused of genocide and crimes against humanity. What we found was shocking: more than $13 billion of “responsible investment” has flowed to 33 of these companies through 344 funds benchmarked to the leading ESG indexes.

The companies include arms makers such as Bharat Electronics, which has supplied weapons to the Myanmar military, and Elbit Systems, which has sold them military-grade surveillance drones; technology companies such as Facebook, which the head of a UN fact-finding mission said played a “determining role” in fomenting hate speech that fueled the Rohingya genocide, and oil giants TotalEnergies and Chevron, which have generated billions of dollars in revenue for the military.

There are many reasons companies with harmful business practices appear in ESG funds. The most fundamental is that ESG is not about a company’s social and environmental impact - contrary to the way it’s advertised to investors - but about how ESG factors affect its profitability. Many have embraced this financial materiality lens, arguing corporate social responsibility is also good for business. But this ignores the inconvenient truth that exploiting workers, externalizing costs onto local communities and doing business with repressive regimes can be good for a company’s bottom line, especially in the short-term. Rationalizing responsible business conduct through financial arguments doesn’t always withstand scrutiny and, we believe, misses the point.

Another fundamental flaw is the data underpinning ESG ratings relies predominantly on company self-reporting and public sources. Ergo, if companies don’t report their adverse impacts and a media outlet doesn’t pick up the story, they won’t be factored into ratings.

But even high-profile controversies, like the collapse of a hydropower dam in Laos that killed dozens and displaced thousands, barely register in ESG scores. That’s because ratings firms amalgamate a huge number of disparate data points into a single ESG score, which means a human rights disaster can be quickly outweighed by a new emissions commitment or gender equity policy.

When a human rights issue does affect a company’s ESG rating, the impact is fleeting, with its weight decaying as it disappears from the news cycle, regardless of whether the harm has been remediated.

These features of ESG ratings methodologies undermine efforts to hold companies accountable to their human rights responsibilities. But the divergence between ESG and human rights grows even larger when it comes to index providers. Firms like S&P, FTSE Russell and MSCI use their flawed ESG ratings to create flawed ESG indexes, which are sold to asset managers to build funds falsely marketed as “sustainable” investments.

While asset managers like BlackRock have received considerable attention for their investment decisions, the responsibility of index providers has been largely ignored. Yet, with passive investing beginning to dominate the market, and even actively managed ESG funds relying heavily on indexes, these firms are the gatekeepers of trillions of dollars of “sustainable” capital – and companies know it. This gives index firms extraordinary leverage, including over rights-abusing companies included on their ESG indexes.

Under the UN Guiding Principles, ESG index providers, like all businesses, have a responsibility to exercise their leverage to prevent and redress human rights violations they are linked to through a business relationship. Yet they almost never do.

That’s why we launched the Stop #ESGreenwashing campaign to end false labeling and ensure ESG ratings and the investment products tied to them are aligned with international human rights standards. The enormous power of the public’s demand for responsible investment could be harnessed to drive better corporate conduct. But unless it is regulated and returned to the values-based intent of the Socially Responsible Investing movement it captured, the ESG industry will continue diverting this potential force for good towards a false solution that makes matters worse. We can’t let that happen.

By David Pred and Natalie Bugalski, co-founders and directors of Inclusive Development International.