“ESG” was supposed to be a straightforward way for companies to explain their business decisions around environmental, social and governance considerations. How did the term go off the rails? Plus, the complicated truth of net-zero pledges.
Since 2015, global leaders have continued to reach historic global agreements on climate change. However, the pledge or the unprecedented sustainability promise is to take on climate change with the goal of net zero emissions by 2050.
While it is true that ESG (Environmental, Social, and Governance) is hyped, it is unfair to attribute all these difficulties in the article solely to its own making due to:
- ESG has brought attention to significant issues in raising awareness about environmental Sustainability, social justice, and corporate governance, encouraging companies to become more accountable and responsible.
- ESG has driven positive change: Over the past decade, companies have adopted sustainable practices, reduced their carbon footprint, improved the social impact, increased renewable energy adoption, improved labour standards, and enhanced diversity and inclusion efforts.
- Companies are also still struggling with Good Governance, even though Lord Cadbury gave us an evident legacy of governance definitions in 1992. ESG is evolving and adapting in a relatively young field.
Therefore, there are multiple challenges, but let us recognise the positive impact it has in driving change, raising awareness, and encouraging responsible corporate behaviour, but above all, the potential to create long-term performance and value for stakeholders and let us also hope for society.
This signaled 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.
Pressure from investors, employees, and governments.
Therefore, to avoid the hype and paper compliance, try to circumvent:
- Announcing undocumented splashy ESG commitments to boost share prices and bolster corporate reputation creates more confusion – or even trouble – rather than positive change in the long run. Some of those ESG commitments have created a myriad of problems for executives. Increasingly, the ESG movement is labelled as “woke” capitalism and accused of enabling greenwashing.
- If the businesses continue to issue net zero pledges, stop labelling the business decisions as “ESG”. This may relieve firms that have faced increasing backlash for leaning into the term. However, if the company fails to make substantial changes, particularly in growing public expectations around corporate responsibility, the truth about corporate net zero pledges will catch up, creating severe liability issues.
Therefore, use terms more on level with reality when releasing sustainability plans with keywords such as “net neutral” and “zero- or carbon-neutral”. They typically commit to reaching the targets in the next 15-20 years.
Net Zero Tracker, an independent group that follows corporate pledges, found that half the world’s most enormous 2,000 publicly listed companies have a net zero target. In the past 16 months, the number of companies with these aims has risen 40% from 702 in June 2022 to 1,003 in October 2023. The organisation reports the corporate world is in “phase three” of the transition: they’ve accepted a climate issue, then pledged; now, they’re delivering on commitments.