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How ESG Came to Mean Everything and Nothing



November 18, 2023 - In 2015, Paris was buzzing with anticipation as world leaders gathered for the UN's annual Climate Change Conference (COP21). After weeks of intense debate, on 12 December, they emerged with a promise: 196 nations pledged to take on climate change with the goal of net zero emissions by 2050. 

For businesses, this signalled the beginning of the "ESG" movement: a focus on environmental, social and governance issues in business decisions. Across the globe, companies rolled out individual, ambitious campaigns towards net zero objectives; 

ESG-focused investment strategies ranged, but often included transitions to green energy and divestment from fossil fuels. 

US telecoms company Verizon, for instance, committed to generate renewable energy equivalent to 50% of its annual electricity consumption by 2025. French insurance company Axa vowed to cut ties with the coal industry by 2030. And after 

George Floyd's murder, global companies including Apple, AbbVie, Facebook, Pfizer, Johnson & Johnson and Procter & Gamble pledged a combined $340bn (£279bn) to furthering racial justice causes. 

However, in the years since firms announced these splashy ESG commitments, often boosting share prices and bolstering corporate reputations, the term has created more confusion – even trouble – than positive change. In fact, some of those ESG commitments have created myriad problems for executives, says Alison Taylor, a clinical associate professor at NYU Stern School of Business, US. Increasingly, the ESG movement has been labelled as "woke" capitalism, and accused of enabling 


As a result, Taylor says that even as businesses continue to issue 

net zero pledges, they've stopped labelling their business decisions as "ESG". This could spell relief for firms that have faced increasing backlash for leaning into the term while failing to make any substantial changes, particularly in a time of growing public expectations around corporate responsibility. 

In 2015, global leaders at COP21 reached an historic global agreement on climate change (Credit: Alamy)


In 2015, global leaders at COP21 reached an historic global agreement on climate change (Credit: Alamy)


The Alphabet Soup of ESG


The fragility of the entire ESG movement – and in some aspects, a major catalyst for its downfall – may well lie in its name, which has morphed into an umbrella catchphrase with little concrete meaning.

First, argues 

Alex Edmans, a finance professor at London Business School, the words don't belong together. "Environmental and social is about how we serve wider society. Governance is about how we generate returns," he says. For instance, an environmental pledge could be a net zero plan. A social commitment could make sure to ensuring hiring is equitable. Governance refers to the framework of corporate policy, like CEO-to-employee pay ratio. And often, these ambitions are functionally incompatible.


Tara Shirvani, a London-based senior advisor at EQT Group, a venture-capital investment firm, agrees that the murkiness of the wide-reaching term comes from encompassing all three words, which can make it difficult to apply in practice.


"Let's take, for example, a lithium mining company. You need a lot of lithium for the energy transition revolution," she says. So, a company might turn to lithium suppliers in Latin America, that uses green electricity for their mining operations – meeting the "E" [environmental] requirement of the term. However, an investigation might subsequentially reveal that the supplier is violating labour laws – the "S" [social] component of the ESG-centred initiative.


Without a solid definition – and, often, a realistic way to action the pledge – "ESG" has come to represent different things to different people. For instance, many people assume the term refers only to investments in green financial instruments or support for companies who pledge to reduce carbon emissions. Others believe in a broader interpretation, like 

faith-based investing.

Yet corporations have gladly used the ESG descriptor for all sorts of business decisions. Many investors endorsed ESG promises gleefully: according to PwC, 

ESG-focused institutional investments were poised to soar 84% between 2022 to 2026, bringing assets under management to a whopping $33.9tn (£28tn).

For firms, there was an advantage to saying they were ESG focused, such as being grouped into certain ETFs, or appealing to retail investors who increasingly wanted to align their portfolios with their personal values. Even Larry Fink, the chief executive of finance firm BlackRock, began 

writing his annual letters, a staple in the investment community, with calls for climate risk considerations and a regard for wider society, alongside profits.


For some companies, these moves raised their profiles, snagging headlines and garnering investors' praise. But at the same time, this rush to become an ESG-focused company has led to overuse of the term and devalued its meaning, says Edmans. "Anything which is good about a company, people say, is ESG. So, there have been some reports say, 'oh, this company is well run, let's call that good ESG'." 

As a result, says Shirvani, "there's actually no surprise that you have 

big investors and others pulling away from bundling these three together".

Pressure continues from the public and shareholders alike for companies to take action on environmental, social and governance matters (Credit: Alamy)


Pressure continues from the public and shareholders alike for companies to take action on environmental, social and governance matters (Credit: Alamy)


In the Crosshairs


Soon, however, the overuse of the term began to reveal cracks in the ESG foundation, leading to trouble for many companies after heaps of praise.

In the US, ESG investing has become a political wedge issue with some legislators, like Florida Governor Ron DeSantis arguing that "woke" leftists are using it as a mechanism to prioritise ideology over profits. Texas republicans have pushed for anti-ESG legislation, and former Vice President Mike Pence has argued that ESG investors are trying to achieve in the corporate world what they couldn't at the ballot box. In the UK, Prime Minister Rishi Sunak has said 

proposed net zero legislations are a governmental overreach that threatens the rights of British people. 

On the other side, ESG proponents are pointing out company failures around sustainability commitments. Desiree Fixler, once the head of sustainability for Deutsche Bank's asset management arm, DWS Group, blew the whistle on the company for misleading and exaggerating ESG claims in its funds. Financial institutions including Bank of America, Citi and Santander failed to deploy funds for a climate ETF after garnering press at 2021's COP27 in Glasgow. Netflix came under fire after laying off diverse content and talent. Brands including H&MKLMNike and 

Samsung have become embroiled in anti-greenwashing litigation.


"I'm somebody who's widely seen as an ESG advocate, and I have to admit that some of the backlash is quite, quite valid," says Edmans. "Funds, say, 'invest in me, I'm going to change the world', and then they don't really change the world. And so, this is why some people have now had a backlash against it."


While some of today's executives might be inclined to wash their hands of the term, NYU's Taylor says the next wave of leaders may cling to the broader concept more tenaciously – perhaps without the label. 


"I explain to my students that there was a time when business was politically neutral," she says. But for her students, the notion of a politically detached business is a relic of the past. "They tell me that's not an option anymore." 


Although her students may not be looking for commitments that are designated as ESG initiatives, says Taylor, they do hold the view that business' role in society is one that must recognise the movements around them, whether that be diversity initiatives, or divestment from fossil fuels.

Plus, amid climate change and social issues in the globalised world, firms face increased scrutiny around their business practices. Whether companies eschew or lean into the ESG terminology, their investors are increasingly putting pressure on them to act with environmental, social and governance considerations at the forefront ­– no matter what they choose to call it.