ESG is dead. Long live responsible business

The 15th annual Climate Week was held in New York City last week, in parallel with the UN General Assembly meetings. These meetings brought the usual cavalcade of government officials, business executives, and celebrities—along with gridlock—to Manhattan. What was lacking, in my estimation, was the degree of buzz we have seen in previous years.

Perhaps this should come as no surprise. In the U.S., political pressure has caused many companies and investors to scale back their ESG commitments. At a global level, ESG has also been subject to some overhype, particularly in the investment community, creating confusion over its purpose and how to measure impact. For many, it become a buzzword for all of the non-financial risks that companies face. No wonder measuring, reporting, and investing on ESG principles have proven a challenge.

While European managers continue to see net inflows into funds that invest on ESG criteria, the U.S. saw over $11 billion in outflows in the first half of this year. In Pitchbook’s annual Sustainable Investment Survey for 2024, those investors who reported not using ESG in their investment criteria cited its “baseless virtue signaling” as the most common reason.

Outside of the financial community, we have also seen some corporates run into stumbling blocks on their net-zero ambitions. For example, automotive manufacturers in the U.S. and Europe have run into delays in electric vehicle (EV) production, due to lagging consumer demand. In a survey earlier this year, AlixPartners found that while 97% of Chinese consumers expected to purchase a battery EV as their next car, only 35% of those in the U.S. and 43% in Europe said the same (figures that were unchanged over the past 4 years).

While critically important on their own, environmental, social, and corporate governance principles have always struck me as somewhat unnatural bedfellows. How precisely can advancement on climate goals or sustainability in the supply chain be measured against DEI initiatives or the improvement of corporate governance?

Business leaders—starting with BlackRock CEO Larry Fink—have begun to focus more on responsible business practices that integrate sustainability, corporate governance, and social issues into business strategies, without the confusion or political baggage associated with “ESG”.

This strikes me as a good thing. While ESG may be in abeyance, the principles underlying it continue to grow in importance, and we see that every day here at AlixPartners. Clients are increasingly coming to us to implement sustainability-related solutions across the whole of their value chain. Companies are rushing to strengthen their governance guardrails in areas as diverse as data privacy, AI, cybersecurity, and regulatory enforcement. And we are ensuring that our own diversity and inclusion efforts are helping us build the best teams to support our clients and build a sustainable model into the future.

It may have been simple to lump ESG priorities together, but I believe disaggregating them may help us to better focus and move more swiftly to tangible action.

A more pragmatic and less politically-charged approach to responsible and sustainable business practices is one I believe most business executives—and a majority of their stakeholders—will support.