It’s time to break up and break down ESG

At a recent meeting of the Fortune Impact Initiative, I argued that ESG has a massive branding problem. Once a promising strategy that companies could do well by doing good, it is now a political football synonymous with “woke capitalism” that is no longer serving the interests of its greatest proponents.

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By shoehorning three disparate topics under one “corporate do-gooder” umbrella, ESG proponents have inadvertently undermined the strengths and magnified the weaknesses of each. They have also given critics the opportunity to take aim at a massive, broad, and blurry target–one that overshadows the indisputable ROI and business benefits of many components of ESG. Because the catch-all term “ESG” is so general and non-specific, it’s easy for one-liners and attacks to replace any sort of useful debate about the merits of specific policies. 

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The failure of ESG from a narrative perspective are harmful in a variety of specific ways: 

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• ESG is failing investors: The ESG designation was supposed to create reporting standards and measurement that contributed to investment opportunities that competed with and even outperformed similar strategies without that label. But between greenwashing and a lack of transparency around what companies are actually doing, the label has become meaningless for returns – or, worse, potentially even indicative of underperformance.
  
  
• ESG is failing advocates: Proponents of ESG, like BlackRock’s Larry Fink, continue to champion the movement as both good for society and good for investors in the long term. Without specificity, however, this catch-all term has become a convenient political boogeyman. This has led some state governments to even move toward limiting ESG investing.
  
  
• ESG is failing practitioners: At an ESG conference I attended last spring, it felt like three different events were happening all at once. Talks on environmental issues were next door to ones on diversity and social issues, and down the hall from panels on governance. There wasn’t enough connective tissue between the three issues, because they are so fundamentally different.

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ESG has lost the messaging war, but the E, S, and G still have a fighting chance if companies are willing to split them up and pursue each independently.

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This is not to say that developing a better narrative will diminish the opposition. Those who stand against what they call “woke capitalism” are highly engaged and motivated, and changing the language we use won’t change that. However, it will force opponents to move beyond generalities and focus their views in more specific ways; and likewise it will force supporters to defend the value of ESG programs with greater specificity. 

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As Fortune’s Peter Vanham wrote after the Impact Initiative meeting, this is the direction many companies are moving in. They’re making the same strategic business decisions that will maximize their business resilience and growth potential in the long term–just without the ESG label.

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Supporters of any of the ideas behind ESG would do well to follow their lead. Breaking the category into three distinct fields will benefit everyone – investors looking for stellar returns, values-driven advocates hoping to shift how companies act, and corporate practitioners hoping to adopt best practices. 

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It’s never easy to change the words we use once they become a habit, and the term has become enmeshed in so many organizations and initiatives at this point. But at this point, there’s no choice: saving ESG will require breaking it up.

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— David Meadvin, CEO and Cofounder, One Strategy Group