ESG Is Having Growing Pains. Here's What Comes Next.

ESG Is Having Growing Pains. Here's What Comes Next.

a panel of speakers

Wednesday, August 3, 2022 - 1:40pm

CONTENT: Blog

By Nicola Acutt

You’ve probably read some less-than-flattering headlines about environmental, social, and governance (ESG) initiatives in recent months. ESG has been called everything from a “scam” and a “loser” to another example of “woke capitalism.” One thing is for sure: the heat of the spotlight has landed on ESG.

With this heat comes a few questions. How much should we worry about the scrutiny being heaped on ESG? And what, if anything, should we do about it?

On the first question, I’ll answer it plainly: I’m not worried, and I’m also not surprised. ESG is no passing fad. In fact, ESG investing is on track to exceed $50 trillion by 2025[1]—serious money that would represent more than a third of all projected global assets under management. It was only a matter of time before those who benefit from the status quo started pushing back.

The second question is more complex. While some critics are clearly leveraging this issue for political purposes, others are raising valid points about the dangers of greenwashing and how ESG performance vs. impact are ultimately measured. This is where we have important work to do to ensure ESG drives value for all stakeholders.

The fact is, ESG has come of age in a bit of a “Wild West” environment[2]. Demand for sustainable, socially conscious investments skyrocketed overnight, with many organizations eager to jump on the bandwagon. But without regulatory guidance or standards in place, pretty much anything could be labeled as ESG. That ambiguity created the situation we find ourselves in now: a mess of conflicting rankings and standards that makes it hard to differentiate those who are doing the work from those who are talking a good game.

Thankfully, this ambiguity should start resolving soon. The desire for better standardization is strong, with VMware recently joining more than 80 other companies in calling for global alignment on sustainability reporting[3]. And with regulators from the United States and European Union poised to act in this space, I expect a consensus around ESG disclosures and standards to emerge within the next year or so.

But reporting standardization is only part of the puzzle that we still need to solve. It is not enough. For ESG to truly fulfill its potential, it also needs to create real-world impact. To me operationalizing a fully integrated ESG strategy that is focused on outcomes is the holy grail.

This issue was top of mind for the CEOS, board directors, investors and practitioners who gathered at the Aspen ESG Summit last month. I was there to help lead the dialogue on building a corporate culture that’s fully fluent in ESG principles—and one of the key points I made was that there’s a big difference between expertise and fluency.

Many companies are currently building out their ESG expertise—hiring dedicated specialists, researching industry best practices, collecting and reporting data. But fluency requires something more.

Fluency happens when a company’s board, leadership team, and workforce are aligned around and share responsibility for creating ESG outcomes. It happens when an organization’s values, business model and ESG principles are one and the same. Put simply, it happens when ESG ceases to exist because it’s been naturally absorbed into a company’s culture and operations.

Achieving fluency is a journey, one we’re still only at the beginning of. But it is essential to delivering on the promise of ESG and creating the measurable impacts that will move us close to a more sustainable, equitable and resilient world.

As ESG comes off the sidelines and becomes more central to business operations around the world, it will continue to attract more scrutiny and criticism. These are growing pains in an emerging reality. But this isn’t a sign of weakness—it’s a sign of success. By focusing on transparent standards and real-world impact, we can achieve our ultimate goal: rendering ESG obsolete because it has become just the way business gets done.

[1] Bloomberg, “ESG Assets Rising to $50 Trillion Will Reshape $140.5 Trillion of Global AUM by 2025, Finds Bloomberg Intelligence,” July 2021.

[2] SDxCentral, “VMware VP: ESG Confronts Regulatory ‘Wild West’,” October 2021.

[3] A4S, “Business and Finance Community Respond to the Proposed IFRS Sustainability Disclosure Standards,” July 2022.

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