Viewpoint: Should Organizations Kill ESG in Order to Save It?

Corporate environmental, social, and governance (ESG) initiatives might be one of the most controversial things practically every large organization does. Advocates say ESG is essential to building a thriving business, while detractors call it a frivolous distraction that hurts organizational performance. The debate isn’t merely academic. To avoid significant real-world consequences, organizations must rethink how they think about ESG, and perhaps even more crucially, how they talk about it.

“We define ESG as an organization’s corporate financial interests that focus mainly on sustainable and ethical impacts, and their role is to ensure accountability and systems to manage a corporation’s impact,” said Ragan Decker, Ph.D., manager of Executive Network and Enterprise Solutions research at SHRM. “As an environmental factor or initiative, we might point to reducing waste and pollution or addressing climate change or increasing energy efficiency. Examples of social initiatives include improving health and safety for employees, establishing training and education programs, and ensuring human rights. And lastly, governance initiatives can include addressing executive compensation, ethics, and board diversity.” 

The State of ESG

ESG is not a monolith, and it can be difficult to draw sweeping conclusions when organizations approach the acronym differently with the programs they implement and how they share data about their work with the world. While 98% of S&P 500 companies issued ESG reporting for their activities in 2022, no standard approach was used.  

New requirements in California and Europe will create some reporting alignment for larger companies doing business in those locales, but these rules, which focus on environmental data, won’t wholly take effect until 2026 and 2028, respectively. The Securities and Exchange Commission spent years considering federal ESG reporting requirements in the U.S., but those efforts are unlikely to be implemented as the end of President Joe Biden’s term nears.

While ESG reporting is still messy, the available data suggests ESG doesn’t hurt corporate performance and may even improve it. A 2023 SHRM study found 80% of HR executives said ESG initiatives don’t reduce profitability. A 2021 meta-analysis of ESG studies by the NYU Stern Center for Sustainable Business found 92% of studies indicate a nonnegative relationship between ESG practices and corporate financial performance, with 58% of studies finding a positive relationship. That analysis found long-term studies were 76% more likely to find a positive or neutral impact on organizational performance, suggesting that ESG programs’ influence may improve over time. 

But not everyone is convinced. At least 20 states have some form of anti-ESG legislation, such as a Florida law that bans state and local governments from considering ESG factors when making contracting and investment decisions. The incoming Trump administration appears likely to roll back some climate regulations, while House bills introduced in 2024 show there may be an appetite in the 119th Congress to move on federal anti-ESG legislation. It is important to note that much of this legislation does not speak to the broad concept of ESG as defined by SHRM Research but instead specifically targets the narrow issue of whether it should be permissible for pension funds to prioritize environmental issues, social issues, and corporate governance versus a fiduciary’s traditional obligation to secure the best financial results for investors. As Congress and state governments consider limiting these specific types of ESG investments, it should be noted that other general corporate initiatives may be unaffected by rules that prioritize pecuniary factors.

For example, pending ESG legislation could increase reporting requirements for businesses. It could dissuade companies from engaging in practices that protect the environment and promote inclusive workplaces. It may even encourage companies to abandon practices that are ultimately good for the bottom line out of a desire to avoid regulatory complications or public relations crises. Businesses need to understand where anti-ESG sentiment comes from to avoid unnecessary distractions and better position themselves for growth. 

Where Does the Controversy Come From?

It’s worth remembering that having an opinion on ESG is somewhat unusual, as 62% of Americans are “not too familiar” or “not familiar at all” with ESG, according to a 2023 Gallup survey, and 59% say they have no opinion on the topic. The same survey found 22% support the idea and 19% oppose it. Democrats are more likely than independents or Republicans to have a positive view of ESG (45% versus 20% and 5%, respectively), but most people in all three groups say they’re unsure how they feel about the topic. 

There are many reasons why someone might oppose ESG programs. Some may point to the underperformance of ESG investment funds. They may question whether such programs are effective at addressing environmental or social concerns. In today’s heavily politicized society, they may associate ESG with other social trends they find distasteful. But there may also be a more primal reason for opposing ESG.

Left Versus Right 

The phrase “The left hand doesn’t know what the right hand is doing” is typically used to describe chaos. It suggests a lack of coordination or communication—hardly something a business would aspire to embody.  

But that isn’t what the concept originally meant. The line is a variation on one from the Gospel of Matthew where Jesus instructs his followers to give to the poor without fanfare—so subtly that not even the left hand knows about the gifts being given by the right hand—unlike “hypocrites” who ensure they have everyone’s attention before performing a good deed.

Does publicity cheapen a gift? A gift’s recipient may not mind a donor getting a moment in the sun. There’s even an argument that public giving can encourage generosity by example. And philosophers have long argued about whether true altruism is even possible.  

But there’s something enduring about Jesus’ criticism of the hypocrites, whose ostentatious do-gooding allows them to assert financial, social, and even moral superiority. Showy philanthropy can feel dishonest if it seems like attention, not ideals, drove the gift. That kind of inversion of values can curdle admiration into disgust, which may get at the heart of why ESG initiatives are controversial for some people.  

Why Should ESG Be Any Different?

There is no shortage of research finding that ESG practices are ultimately good for business. But if that’s true, why do companies brag about reducing energy use in marketing campaigns? Why should they ensure consumers know when a package is even partially made from recycled materials? And why bother trumpeting diversity statistics or wage increases?  

Companies don’t publicize cost-cutting measures and other shifts that are “good for business.” Why is ESG different? It seems reasonable that if ESG programs were sound business practices, they wouldn’t need public praise to justify their existence. The incongruity creates the suspicion that these programs are just another disappointing marketing gimmick, which can create hurt and anger in place of admiration.

That suspicion grows worse when some of a company’s claims turn out to be less than accurate. In 2021, European regulators found that 42% of companies’ environmental claims were exaggerated, false, or deceptive. Companies can incur millions or even billions in fines for making improper claims about their environmental impact. That doesn’t include damage to an organization’s brand with consumers. If a brand is willing to lie about its carbon footprint, what else might it be willing to lie about? Consumer trust is too important to gamble with on these sensitive issues. 

Rethinking ESG

None of this means businesses should stop investing in ESG programs, making decisions with ESG principles in mind, or reporting on ESG performance. The available data indicates that ESG programs really are good for business. However, they may not be good marketing, as learning about a brand’s ESG record leads to only small, temporary shifts in buying patterns. Worse, the visceral reaction some people have to watching a company pat itself on the back may actually make it harder for companies to perform ESG work successfully if backlash fuels support for anti-ESG legislation.  

However, ignoring ESG entirely would open companies up to a host of risks. Sustainability reduces waste. Inclusion reduces turnover. Strong oversight reduces illegal, unethical, and immoral behavior. Organizations can’t afford to ignore those challenges. But they must rethink how they approach them.

Rebranding Isn’t Enough 

It may be tempting to think this is just a messaging problem. Perhaps if companies framed these issues differently or used different labels, ESG work might become more broadly palatable. 

But this isn’t the first time organizations have had this conversation. Before the term “ESG” made its debut in 2004, leaders talked about the “triple bottom line” of people, planet, and profit. Before that, they discussed “corporate social responsibility.” The investment community has also discussed socially responsible investing, ethical investing, and sustainable investing. Every change in nomenclature comes with the same issues, winning detractors alongside adherents.  

We’re on what psycholinguist Steven Pinker called a “euphemism treadmill,” in which a term is introduced to replace a problematic old one, only to retain the same associations and eventually require its own replacement.  

If business leaders switched to trumpeting their investments with a new buzzword, it might work for a while. But eventually, people would realize it was just another term for the same marketing strategy. The practice could even be more controversial with a new name, because people could resent the attempt at deception. Rather than abandoning ESG or attempting to rebrand it, business leaders should rethink it.  

Going Deeper

Organizations should quietly retire the notion that they’re investing in any aspect of ESG because it’s the right thing to do. If the public doesn’t believe an organization would do good for its own sake, there’s no reason to double down on the story.  

That doesn’t mean organizations should stop doing ESG work. However, they need to recognize that making those actions the focus of a marketing campaign may be self-defeating. Traits such as inclusion and efficiency are good for business regardless of publicity. If ESG marketing makes ESG more controversial and that controversy makes performing ESG work more difficult, executives should choose to simply support their businesses and reconsider touting their ESG numbers with great fanfare.  

Organizations must continue to comply with any applicable ESG reporting laws and regulations. But there’s a big difference between sharing ESG data with governments and shareholders and making ESG a PR campaign. To truly harness the potential of these programs, businesses must integrate ESG into their core operations authentically and measurably without succumbing to the allure of using it purely for attention.

ESG commitments should be a core part of business, rather than a sideline. ESG principles must be integrated into corporate strategy to create real value. Business leaders should identify material issues specific to their industry and develop initiatives that support sustainably improved organizational performance. This strategic integration is essential for long-term success.  

Organizations should design initiatives that make sense for their industry and market position, rather than catering to PR trends. Everything the organization does should be grounded in its values and aligned with its business strategy. Measurement should be considered at the outset of any ESG programs, as they should need to show results, though it may be helpful to take a longer-term approach and consider limiting risk as well as maximizing reward.

The Exception to the Rule 

While ESG accomplishments may be risky inclusions in marketing, they’re essential to an organization’s employer brand. Providing meaningful work is one of the key ways companies can fight employee disengagement. SHRM’s 2023 ESG research found that 75% of HR executives believe ESG strategies positively impact employee engagement. Additionally, 64% say ESG efforts positively affect their efforts to recruit talent with the necessary skills. Engaging employees in ESG initiatives can boost morale and foster a culture of accountability and shared values.  

Of course, ESG communications still need to be careful and accurate. Misleading ESG claims could be even more disillusioning for employees than for consumers. For example, employees may be able to tell if their company’s claims about inclusion and diversity (I&D) are baseless, which could lead them to question the organization’s values or leadership.  

ESG claims made to employees must be apolitical and focused on the employee experience. Businesses must emphasize the substance of their ESG programs rather than the label, highlighting results, not ideology. Removing the frame of ESG being the “right thing to do” in a philosophical sense and replacing it with tangible impacts can reduce the perception that these programs are partisan or hypocritical, rather than practical business decisions that also create change in the wider world.

It’s also crucial that the organization isn’t the hero of the story—the workers are. Their contributions make the organization’s ESG progress possible. Only together can you leave a mark on the universe—and avoid being hypocrites.