Concern around the global climate crisis is giving way to rising criticism of ESG (environmental, social and corporate governance) as a concept. And it’s not unfounded:
- The term aspires to capture a wide, often disjointed breadth of themes – as exemplified recently by Tesla.
- Many ESG impacts are inherently difficult to measure, making it difficult to achieve common standards.
- There are also questions around the intentions of financial market actors regarding ESG. Do they actually care about a real-world impact, or is it simply a means of risk management?
Despite these criticisms, the underlying rationale for ESG continues to gain momentum. Societal pressure, investor demands and evolving regulatory standards are pushing the expectation that business and financial actors must enable a transition to net zero. However, lack of common standards and reliable data make it difficult to evaluate ESG performance, which puts companies at risk of greenwashing allegations that could severely damage their reputation.
While the debate grows increasingly polarized, corporations will need to develop a strong, transparent approach to ESG. To navigate this challenging environment, companies should focus on these actions:
- Identify the material risk factors and value drivers for ESG measures.
- Build ambitious ESG strategies with credible targets that are integrated into corporate strategies and business models.
- Explain how ESG strategies are being implemented, highlighting the complexities of the net zero transformation.
Communicate ESG roadmaps that provide transparency on commitments, concrete action and tangible progress. This should be done in a way that shows that targets are not an end in themselves.