Why Bother? ESG and Its Discontents

Why ESG Still Matters

Despite the noise, the fundamentals of ESG integration remain sound:

Regulatory Compliance Is Evolving, Not Reversing 

Although ESG regulations face political resistance in regional pockets, the global trend is moving toward mandatory disclosure and risk assessment. The EU’s Corporate Sustainability Reporting Directive's (CSRD) staggered implementation phase, and the Australian Accounting Standards Board's (AASB) new sustainability disclosure rules signal that regulatory expectations are only going to become more commonplace and not suddenly disappear.

Investors View ESG as a Risk Management Tool

The world’s largest institutional investors, including BlackRock, Vanguard, and State Street, still integrate ESG factors into decision-making - not as a “woke” ideology, but as a method to assess long-term risk and resilience.

Good Governance Drives Financial Performance

Governance has been a mainstay of investment diligence, even before the rise of ESG. Strong corporate governance, including transparent leadership, ethical decision-making, and robust risk management, remains a strong predictor of sustained business success.

Consumer and Employee Expectations Have Shifted

ESG is not just an investor issue; it is a market demand issue. Consumers increasingly support brands that demonstrate sustainability, ethical labour practices, and social responsibility, with research suggesting that consumers are willing to pay a 9.7% sustainability premium (PwC Voice of the Consumer Survey 2024). Employees also seek purpose-driven workplaces, with ESG factors influencing talent attraction and retention (PwC's Global Workforce ESG Study 2024).

The Future of ESG: A Smarter Approach

Rather than whole-sale abandonment, companies and investors can adopt a more refined and data-driven approach to ESG integration:

Prioritize Governance

Companies should double down on governance as the foundation of sustainable business practices. Not only does good governance practice improve business adaptability, resilience, and risk management, but also tends towards improving the environmental and social aspects of ESG too. This is because effective governance facilitates consistency, knowledge sharing, and communication across firms, creating firm foundations for strategic projects. You must build a railway before you catch the train.

 Move Beyond Box-Ticking

Superficial ESG commitments do not hold up under scrutiny - genuine integration of ESG into corporate strategy is key. An ESG integrated approach can help firms capture lost and new sources of value, and act as buffers against market shifts, boosting resilience.

Emphasize Materiality

Firms should focus on ESG issues that have direct financial and operational impacts, rather than trying to address every issue. Reimagining the relationship between the economy and the natural world can be complex and challenging but, if done efficiently and robustly, can ensure resilience in a changing political and environmental climate.

ESG Is More Relevant Than Ever

The backlash against ESG may suggest that adoption is in retreat, but the reality is, as always, more nuanced. While the conversation around ESG is shifting, the underlying principles of effective governance, risk mitigation, and long-term value creation are more relevant than ever, and will continue to be so for the foreseeable future.

The companies that recognize this will not only survive the ESG turbulence but thrive in a future where resilience and accountability are essential for success.

One Final Word on ESG: Second Nature, not Second Thought

ESG was never intended to be a permanent, standalone concept; it is a transitional framework designed to help businesses integrate what were previously considered externalities into decision-making. 

The fundamental idea behind ESG is that environmental and social costs, once considered peripheral, should be factored into core business strategies just like financial risks. This is not about adding unnecessary do-good bureaucracy; it is about recognizing that issues like climate change, resource scarcity, and labour practices directly affect the profitability and resilience of businesses.

When companies fully embed these considerations into their operations, governance structures, and risk management, ESG will cease to exist as a distinct initiative - because it will simply be how good business is done. The goal is not to keep ESG separate but to make it redundant - a sign that sustainability, responsibility and, most importantly, the accurate assessment of risk have become second nature in corporate decision-making.