Will ESG go away? Not soon, new figures show

Its popularity stretches from individual consumers to some of the most prominent investors in the world. Still, ESG (environment, social and governance) has its fair share of critics. 

To some, it’s just an annoyance – a fad that adds more bureaucracy to corporate governance. To others, it’s an attack on the free market, forcing firms to think and act a certain way – not necessarily in the name of maximum shareholder returns. 

Both groups of people hope that the entire movement is just a phase and will soon pass into history, but they might be waiting longer than they hoped.

Global non-profit think tank The Conference Board has recently released new data showing how ESG has a hold on US boards. 

After extensive research into “the role of the board in the era of ESG and Stakeholder capitalism”, the agency suggested that both are here to stay in the medium to long term. 

In particular, ESG’s impact is “likely to be somewhat more durable and significant,” according to a summary document released this month.

From multiple data sources, including executives and corporate secretaries involving nearly 140 companies, the research found that: 

• A massive 95% of respondents said that ESG, combined with stakeholders’ long-term welfare, has affected their board’s deliberations. 
• 68% of respondents said that ESG would remain “significant and durable” over time.
• This compared to only 10% of respondents who said it was “significant, but temporary”. A further 10% said it was “significant, but fading over time.”
• 6% said it was “not significant” – even now. 
• 87% of S&P500 companies and 61% of Russell 3000 companies have directors with experience in at least one area of ESG.

There has also been a significant concern among boards over managing long-term issues. This includes: 

• Getting information from stakeholders on what goals they should have and refining them into concrete targets. 
• Condensing the vast and untamable E, S, and G components into manageable priorities that accurately reflect company strategy. 
• Enhancing board communications to ensure ESG strategy remains relevant and consistent.

The US is where the fight over ESG is the loudest, yet the country’s boards are certain the movement will stick around. 

Not only are they thinking long-term about ESG, they have been doing so for the past number of years already. 

Their willingness to let ESG factor in their decisions, as well as their detailed concerns for skill sets and data processing, means they are already invested in ESG as a component of future strategy.

That’s for the boards themselves to decide, as well as for company shareholders. 

But, in general, it is a good move for boards to consider such a topical motion as they plan because, ultimately, their role is to act in the best interests of shareholders. 

Investors, particularly large investors, are themselves firming up ESG policies, demanding higher standards and better reporting. Boards should remember this when they make their own conclusions about it.

In the meantime, consumers and politicians have also become very attached to ESG values both inside and outside the US. Companies need to pay attention to this trend to avoid irrelevance, PR headaches, and losing out on funding.