How ESG came to mean everything and nothing

In 2015, the city of Paris was filled with excitement as leaders from around the world came together for a climate change conference. They made a historic promise to tackle climate change and aimed for zero emissions by 2050. This marked the start of the 'ESG' movement for businesses, which stands for environmental, social, and governance. Companies worldwide began to launch campaigns to reduce their impact on the environment, like using green energy and stopping investments in fossil fuels. For instance, Verizon committed to using renewable energy for half of its electricity by 2025, and Axa planned to end its relationship with the coal industry by 2030. Following the tragic death of George Floyd, many corporations pledged billions to support racial justice initiatives.

However, the term 'ESG' started to cause confusion and problems. Alison Taylor from NYU Stern School of Business observed that companies are now hesitant to label their actions as 'ESG' due to the backlash from those who see it as a form of 'woke' capitalism or an excuse for greenwashing. The original intent of ESG was to guide companies in making decisions that are good for the environment, fair for society, and well-governed. But the term has become so broad that it's lost its specific meaning. Alex Edmans from London Business School argues that the components of ESG don't necessarily fit together, as they address different aspects of a company's impact and operations.

The overuse of 'ESG' has led to skepticism and criticism. In the US, it has become a political issue, with some arguing that it's being used to push certain ideologies over profits. In the UK, there's debate over whether climate change initiatives are overstepping government boundaries. Despite the controversy, the next generation of business leaders is expected to embrace the principles of ESG, even if they don't use the label. They understand that businesses can't ignore political and social issues. Companies are under increasing pressure from investors and the public to address environmental, social, and governance issues, regardless of the terminology they use.