What the ESG Critics Are Right About—And Where They’re Misguided

Like consumer prices, sustainable business has been on a rollercoaster since COVID-19 emerged over two years ago. Sustainability or ESG (environment, social, and governance) considerations were a business, investor, and media darling. Until recently.




Judging from 2022’s headlines, a casual observer might conclude that sustainable business has gone from hero to zero overnight. Regulators are looking to set rules to govern when investment funds earn the ESG label. Media, consumers, and now regulators are leveling claims of greenwashing on a frequent basis. The public asks: “If every company is doing what they say, and airing slick commercials to convince me how good they are, why is climate change and income inequality getting worse?” And “ESG insiders” have come out of the woodwork to assert that “the ESG emperor has no clothes.”

Some of these questions are not only legitimate, but hugely important.  Some questions, which reflect political backlash, are much less so. And for all of us focused on just and sustainable business, we ignore this backlash at our peril.

To start, the critics get three big things right.

First, there is undeniably a gap between aspiration and delivery. The rise of “net zero” carbon commitments is necessary, but clearly insufficient—so far—to put the world on a trajectory towards a stable climate that can sustain a healthy economy. The same is true with respect to companies seeking to protect biodiversity and oceans by being “nature positive” but not yet achieving the promised benefits. These big aspirations mark a leap in ambition from even five years ago. We need simultaneously to ensure accountability without creating incentives for business to retreat to incremental change.

Second, it also is true that there remains a disconnect between companies’ aspirations and what they—or more often their trade associations—do to oppose public policies needed to put our economies on a more sustainable path. For example, too many companies prioritize opposition to tax reform over full-throated support for climate action through efforts such as Build Back Better and other measures. It is critical that business close the “say-do” gap both with respect to their actions and their policy advocacy.

Third, there is widespread and legitimate confusion over what the terms “sustainability,” “ESG,” and "net zero” actually mean. The rise of consistent standards is welcome and overdue. The promise of global standards defining what companies can and cannot label “ESG,” through efforts like the International Sustainability Standards Board (ISSB), will help bring badly needed order to the current chaos. This will help reduce concerns about greenwashing for the public, and will provide the certainty business needs to make ambitious commitments.

These critiques are both valid and valuable. It is also the case that those fostering the backlash get some big things badly wrong.  

First, sustainable business is about long-term change; it is, by definition, complicated to gauge progress quarter to quarter or year to year. Climate is the best test of this principle, with most net-zero targets up to decades away from full delivery. Showing progress today is needed, but it is to be expected that full delivery will take time. There is a big difference between critiquing illusory commitments and embracing structural change that, by definition, takes time. There must be space for companies to make long-term, high-ambition commitments, even as they know that technological innovation, consumer behavior, and public policy are massive dependencies that will also play a role in whether change takes hold.

Second, some of the backlash seems to be designed to provide an “off-ramp” for businesspeople who have been skeptical about the value of sustainability to begin with. It is remarkable how much media attention has been lavished on Stuart Kirk, who has now left HSBC after his infamous jeremiad against climate alarmists, or Tariq Fancy, who now claims that ESG investing is largely useless.

The media seem to be applying the same “bothsidesism” that climate skeptics have used to their advantage, never mind the science. Basic facts suggest that their critiques are at best overstated.  Climate and the destruction of nature quite clearly threaten business, imposing costs, and disruption. The flip side is also true: increased investments in new technologies, from energy storage to plant-based foods to inclusive hiring, deliver clear benefits. There will be inevitable ups and downs as these new markets mature and take hold; dismissing them is short-termism at its worst.

The final and most corrosive element of the backlash has immense importance, especially in the United States. Many political figures, including several aspirants for the Republican nomination for president in 2024 have attacked so-called “woke capitalism.” This is nothing more than political opportunism, unfairly dragging ESG into toxic culture wars. “Green-baiting” in the 2020s is no more justified than the red-baiting that injected venom into the American political scene in the 1950s. It has been laudable to see business leaders including JP Morgan Chase’s Jamie Dimon and BlackRock’s Larry Fink push back on this narrative. One would think that Dimon and Fink’s bona fides as capitalists would put these specious arguments to rest, but the attacks continue nonetheless.

It is obvious that our world faces immense challenges. Business action can be a great asset in creating innovative solutions and new investments in a world that is safer, fairer, healthier, and more resilient. By all means, business should be held accountable, and greenwashing should be called out for what it is. If sustainable business is going to deliver the goods, and navigate a new level of scrutiny because of its importance and prominence, it’s time to get more serious. It is also time to push back on specious arguments that say more about critics’ self-interest than our mutual interest in human progress.

This was first published here: BSR | Our Insights | Blog | What the ESG Critics Are Right About—And Where They’re Misguided



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