How is ESG evolving?

How is ESG evolving? Just where exactly are we at with this – one of the biggest governance topics of our time? 

There’s no getting away from the intense debate or the conveyor belt of incoming regulations to try and make the movement more robust, thorough, and measurable. 

But if you’re a corporate leader trying to plan your year and wondering where exactly the world is at with ESG, here’s where things stand:

ESG (environment, social and governance) is a collective framework through which stakeholders (usually investors) assess a company’s risk and opportunities in the three above areas. 

They are areas that speak a lot to modern sustainability values: climate change, social protections, and governance integrity – all are issues that didn’t matter much a few decades ago but which do now to many people and spark fierce debate in the process.

ESG’s popularity is reflected a lot in the interest levels in ESG-related assets. At the start of the decade, the value of ESG assets worldwide was expected to top $40 trillion by 2025.

However, a November 2023 report from Global Sustainable Investment (GSI) – covering 2022 – estimated that this figure had actually fallen from $35 trillion to just over $30 trillion.

Meanwhile, debate continues to rage over ESG – if not the concept in principle, then how companies and investors pursue it. 

All stakeholders’ eyes are following it closely. Conflicting viewpoints are widespread.

In summary, no. ESG remains popular worldwide despite what many would consider a slowdown in the last few years. Ultimately, the concept is still not a fad that will fizzle; it’s here to stay.

If we drill down into the GSI report that tracked it, we’ll see two things:

1. The drop in value is centred on the United States. The report has found that outside that country, the total value of sustainable assets under management (AUM) has increased 20% from 2020. 
2. The drop inside the United States is the result of a large-scale relabelling. Many previously labelled “sustainable” assets no longer have that designation.

The world is getting stricter about what kinds of assets we can truly call “sustainable”. This is happening because stakeholders, including consumers, governments and investors, are acutely aware of rampant greenwashing in the corporate world, so they’re making every effort to close the avenues enabling companies to do it. 

Movements like that will naturally produce a slimmed-down list of worldwide assets we consider worthy of the ESG label.

No, that’s the other main point to consider when we ask, “How is ESG evolving?”.

In addition to the fiscally conservative backlash, there are a healthy amount of critics who are fed up with ESG because they don’t see it as fit for purpose. 

Larry Fink, CEO of BlackRock Inc. – the world’s largest investor – said in 2023 that he no longer uses the term because of how politicised it has become. 

Meanwhile, in October 2023, Robert Jenkins, head of global research at financial services firm Thomson Reuters Lipper, told CNN Business that he had “always wanted to see the end of that term.”

He said the way it was structured made it impossible to “bring those three very different analytical pillars [E, S & G] together into a single score that actually tells you something meaningful about the overall company.’

However, he added that if ESG in its current incarnation does fizzle away, it would likely reemerge in a different format.

The core principles of ESG – environment, social and governance. Consider them independently, if not together, and know that no matter how popular ESG is or isn’t, stakeholders will still want you to perform in these three areas. 

How you split your attention on these areas is up to you – perhaps it will depend on your industry and your medium to long-term strategy. It is essential to give continued thought to risk, opportunities, goals and metrics in E, S, and G. Seek new expertise or training if you need it. It will help down the line.