Rethinking the future for ESG through the lens of sustainability 

The debate around the future of ESG continues at pace, with the FT questioning whether the term is “coming to the end of its useful life” and The Sunday Times’ Oliver Shah calling for it to be replaced with “CDP – common sense, decency and pragmatism”.  

Oliver is right to challenge ESG, the metrics used, the behaviours incentivised, and the sometimes unpredictable outcomes created. Investment decisions based on binary ratings have encouraged dogmatism and a tendency to frame the world as we want it to be, rather than as it really is – ‘defence bad, renewable energy good’.  

This mentality lacks nuance, rubbing against the world’s complexity and ambiguity. Having an equality, diversity and inclusion (EDI) policy is not the same as embracing EDI in your strategy, culture and governance. Ratings are not yet mature enough to distinguish between the two, but we have to start somewhere.  

We also see a tendency to frame the debate on ESG in the context of societal divisions: another front in the culture war. The FT’s Big Read, Vivek Ramaswamy, warns against “a small group of effective corporate elites” being able to “decide what’s right for society”.  

It feels like there are two debates here: The first, about whether ESG is fit for purpose in driving our financial system and businesses make positive contributions to societies, communities and the natural world; the second, about whether ESG is a front for a ‘woke agenda’ with a stranglehold on global business and capital markets.  

The politicisation of business’s sustainability efforts risks scaring off those with a low tolerance for reputational risk from addressing the agenda. Rather than shrink from vocal critics, businesses should recognise that they can no longer “please all of the people all of the time”. That will be uncomfortable for a community used to sailing quietly beneath political debate.  

Standing back, progress made in establishing ESG factors as part investment decisions and how businesses operate, is a good thing. It’s far from perfect and needs a huge overhaul but we’re in a far better place now that this agenda is debated regularly in the board room, than when it was a side issue, pursued by a committed but niche community of sustainability specialists who often did not speak the language of business.   

In addressing the problems of ESG, we should think about the fundamentals of sustainable business. Far from imposing elite views on society, this means looking outwards to channel more voices into corporate decision making; stepping up to address the nuance and complexity that the world throws at us; and setting strategy and making decisions that create long-term financial value for shareholders, as well as social and environmental value for society. 

This is challenging enough for individual businesses to get right operationally, so it’s not surprising that there are teething problems in ESG, which seeks to apply the logic to our financial systems.  

We need a collective conversation between governments, businesses and civil society on the future of ESG. One that continues to stress solutions to the long-term, systemic challenges of our time and addresses the current ‘box-ticking’ shortfalls in how ESG works. So rather than burying ESG, we should work together to shape a system that works for shareholders, the planet, and all the people that have a stake in it – which is everyone.  

As we do that, we should bear in mind these words from the charity, Blueprint for Better Business: “there are two apparently contradictory truths –what counts is what gets counted and what really counts can’t be counted.” 

This article first appeared in PRWeek.