Listen: My Noa Series for September

A pushback against ESG is developing in the US and beyond, and for business leaders, this changing sentiment poses a dilemma. Is it time to rethink ESG?

Business people who say the companies they manage are not concerned “merely” with profit, but also take seriously their responsibility for eliminating discrimination and avoiding pollution are “unwitting puppets” of intellectual forces “undermining free society” in recent decades.

You might recognise this as a contemporary criticism of the ESG reporting and investing; an approach that considers the environmental, social and governance aspects of businesses, not just financial returns.

What you might not recognise is that statement paraphrases the opening of an article that the economist Milton Friedman wrote in The New York Times in 1976.

Friedman was the standard bearer for the doctrine that a corporation’s sole objective in a capitalist society should be maximising value for shareholders, i.e. profits. And this has been the dominant approach since.

However, in the past decade, the ESG movement has challenged it. The financial crisis of 2008 brought company governance and impacts on wider society into sharper focus. And the effects of climate change have made the environmental impact by companies a hotly debated topic.

ESG funds – which invest only in companies that meet certain ESG criteria – had $7.7 trillion in assets under management in 2023. That is double the amount they held in 2016.

But this advancement of ESG is facing a backlash. US Republican candidate Vivek Ramaswamy is the co-founder of a firm that works to influence shareholders to vote against company ESG initiatives. And his Republican rival, Ron DeSantis, has proposed legislation in Florida to prohibit the state from considering ESG criteria when making investment decisions.

This push back against ESG isn’t confined to the US either. A Bloomberg survey of 300 business people found roughly two-thirds planned to stop using the term ‘ESG’ with clients – although most said they would continue progressing policies in those areas.

For business leaders, this changing sentiment poses a dilemma. Is it time to rethink ESG?

My thoughts… “Whichever way the wind may be blowing on ESG, it’s important that business leaders are clear on what their organisations are doing – and why. Reporting obligations are one thing, but companies that treat ESG as another box to be ticked are missing the opportunity to provide real leadership in relation to climate change, which has become the biggest global issue of our generation.”

In this Series, we’ll start with two articles from Harvard Business Review. The first clarifies what we mean when we talk about ESG reporting. The second takes a deep dive into how ESG measures are – and are not – affecting business strategies. We’ll then finish by looking at imminent changes to sustainability reporting for companies in the EU, which has been billed as the biggest accounting experiment in a century.

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