By Karen-Clarke-Whistler, Principal, ESG Global Advisors

There is no question that the politicization of ESG within the United States has had a chilling effect on the conversation around ESG. Blackrock CEO Larry Fink, once regarded by some as a leader in the adoption of environmental, social, and governance (ESG) practices, has stepped back from using the term, stating that “I don’t use the word ESG anymore, because it’s been entirely weaponised… by the far left and weaponised by the far right.” 

Meanwhile, the UN-backed Net Zero Climate Alliance composed of leading global insurance companies has lost 12 of its 28 members, and some US states are enacting legislation to eliminate ESG criteria from insurance and investment considerations. With all of the hype about ESG over the past five years – is it really just a passing fad? Or, is this a sign of a much-needed maturation and right-sizing of ESG?

As someone who has been in the corporate ESG field since before the term was invented, I’m confident it’s the latter. 

I have watched with increasing dismay as ESG has become an overly academic and aspirational movement often resembling a religion. This is a far cry from its original intent. ESG evolved from the term sustainability, which weighed the balance between economic growth and related environmental costs. Sustainability matured into corporate social responsibility, which questioned the role of corporations in society. Finally, we got to ESG, where corporations are asked to examine the significance of environmental and social factors on financial performance and long-term value. 

Done well, ESG is all about common sense and sound strategic planning. While it may be difficult to express all aspects of good governance, climate change, or human capital issues in strictly financial terms, we know that these are hugely important to a company’s long-term success. In addition, every sector and company has unique ESG-related issues that are critical to their business. For example, local community relations are of paramount importance in the resource sector, while international supply chain issues are vital in manufacturing. It is these critical few financially-material ESG factors that companies and investors need to focus on. 

It appears that ESG is finally growing up and doing what it was meant to do – which is to provide better visibility into the risks and opportunities that have the potential to drive a company’s bottom line. 

Watch this space for our team’s forthcoming analysis of standards and regulations that will shape the future of ESG.

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