In this Comment from a Reuters magazine, the author attempts to rescue the underlying environmental, social and governance principles from the often disparaged term, “ESG.” ESG, he observes, was “[o]riginally conceived as a financial tool to frame how corporations disclose their impact and investment,” but has now become a term that is “fraught with debate, lacks a clear definition and is often misunderstood.” However, he contends, people actually associate many of the values and concepts underlying ESG with business success. Perhaps the term should be retired, he suggests, in favor of something less freighted. “Responsible business” might do the trick—especially “responsible business” that correlates with positive corporate performance.
In some circles, particularly conservative circles, the author observes, ESG has become almost synonymous with “woke capitalism”—a perspective that a “growing segment of American voters” rejects: those hostile to ESG and “seeking to influence the public debate on the role of business in society have used the vagueness of ESG as a weapon, effectively demonizing the term, along with the perceived ‘woke’ agenda. Since 2021, 318 anti-ESG bills have been introduced in 38 U.S. state legislatures, with dozens filed already this year. These bills range in severity from prohibiting state agencies and local towns from offering tax subsidies to a company that participates in an ESG scoring or rating system, to making it a felony punishable by up to 20 years in prison for an official to ‘knowingly’ make investment decisions using ESG criteria.”
Is the term “ESG” the villain here? The author cites interesting research by “language strategists” Maslansky + Partners supporting the idea that just avoiding the term “ESG” might go a long way: while voters might disparage the term “ESG,” they associate the phrase “responsible business” favorably with “business success”: the research found that the vast majority of both Democrats and Republicans agreed with the concept “that ‘companies have a responsibility beyond serving shareholders to make a positive impact on the world.’” To be sure, many of the principles and values underlying “successful and responsible business” align fairly closely with those underlying ESG. According to the article, when voters were asked to discuss the factors that contribute to a “successful and responsible business,” they
“focused on three areas:
- How well do they treat their employees?
- What is the impact on local communities? Does the company ‘look’ like the communities in which they operate?
- Do they take care of the environment?
People generally understand the connection between responsible business practices and financial success, as well as the value of companies managing resources, supporting employees, and embracing diversity. These are business priorities for a 21st century executive, and core elements of an effective business strategy.”
The author reports that, while ESG backlash has led many major corporations to discontinue use of the term “ESG,” but it hasn’t caused them to give up on sustainability. He cites a recent global survey conducted by KPMG which showed that the vast majority of global organizations plan to increase spending on sustainability initiatives over the next three years. (As discussed in this PubCo post, in the KPMG survey of 550 company directors and members of management, 90% of respondents reported that they expected to increase their ESG investments over the next three years, with 43% increasing expenditures on dedicated ESG personnel, 40% on ESG-specific software, 38% on employee training and education and 37% on data collection and management tools. About 32% planned to invest in external consulting or advisory services.) The author also points to support from a 2024 EY survey, which found U.S. respondents “were the most likely to report that sustainability has become a higher priority, and the least likely to report de-prioritization, compared with companies in other countries.”
The author advises that the answer lies in properly “framing these actions to emphasize the link between responsible business practices and financial prosperity, underscoring the need for comprehensive frameworks for measuring and reporting corporate performance. Demand for increased accountability and transparency on these matters will continue to rise, and improving corporate performance and accountability is essential for long-term corporate value and business success….To make this shift, companies need to prioritize authenticity, align materiality and their messaging with their brand values and consumer expectations, and demonstrate tangible business benefits.”
