Is ESG Inherently Flawed? An Exploration Through HBO's?Industry?and the Real World

In the modern financial landscape, Environmental, Social, and Governance (ESG) investing has rapidly emerged as a significant trend, touted as a moral and strategic framework for companies and investors alike. ESG principles promise a pathway where profitability and altruism coexist and where businesses do well by doing good. Yet, as HBO's critically acclaimed drama?Industry?rises in its third season, the question lingers: Is ESG truly a meaningful solution, or is it just another facet of a system designed to maximise profits, often at the expense of the values it purports to uphold?

In?Industry, co-creators Mickey Down and Konrad Kay dive into the financial world's complex moral maze, exploring whether it's possible to maintain ethical integrity while thriving in an environment driven by the relentless pursuit of profit. The show's third season, which revolves around a renewable energy company's IPO, uses ESG as a thematic backdrop to question the balance between altruism and capitalism. This article will unpack the real-world implications of ESG, blending the fictional world of?Industry?with the genuine criticisms and limitations ESG faces today. Ultimately, it will examine whether ESG can ever truly escape the gravitational pull of profit and serve as a catalyst for positive change or if it is, as some claim, inherently flawed.

The Rise of ESG: A Utopian Ideal or Marketing Gimmick?

ESG investing was initially hailed as a groundbreaking shift in financial markets that linked societal well-being with corporate success. It emerged from the belief that businesses could do more than drive shareholder returns—they could address pressing global challenges such as climate change, labour conditions, and corporate governance. In theory, ESG was a win-win: investors could feel good about where their money was going, while companies would reduce risks associated with poor environmental or social practices.

The scope of ESG exploded, with the Industry attracting nearly $3 trillion in assets in 2022. Financial institutions were quick to hop on board, and the market became saturated with ESG-labeled funds, often representing portfolios that supposedly screened for companies committed to sustainability and social responsibility.

But this is precisely where?Industry?steps in to cast doubt. Early in the third season, a character declares ESG as nothing more than a "utopian opiate for morons who believe in a better world." This sharp commentary reflects the growing backlash against ESG, which has become synonymous with greenwashing—a deceptive marketing tactic where companies and funds advertise themselves as environmentally responsible while maintaining business practices that are anything but.

The season's plotline revolves around Lumi, a renewable-energy company with questionable financials and an aristocratic CEO. As Pierpoint's bankers navigate Lumi's IPO, the show's characters grapple with the dissonance between the ESG principles Lumi supposedly champions and the stark reality of the corporate world. Here, the show cleverly raises the question: Is ESG about genuine change, or is it simply another tool companies use to exploit market trends?

ESG in Practice: The Corporate Reality

One of the most potent criticisms of ESG is that its implementation lacks substance. Critics argue that companies are quick to adopt the language of ESG but need to be faster to make any fundamental changes to their business practices. The ESG framework has been applied so broadly that its meaning has become diluted. Companies cherry-pick criteria they can quickly meet without altering the core of their operations. As a result, ESG risks becoming a box-ticking exercise rather than a transformative force.

This tension is at the heart of?Industry's narrative. Through the character arcs and the financial dealings around Lumi's IPO, the show illuminates the corporate hypocrisy embedded in the ESG movement. At one point, the show visits a COP-like climate conference, where fund managers sip cocktails, lament the melting snow, and arrive via private jets, all while discussing their ethical investments. Such scenes underscore the stark contradictions inherent in ESG: how can institutions claim to champion sustainability while actively participating in unsustainable practices?

This kind of hypocrisy is mirrored in the real world, where companies tout their ESG credentials while simultaneously engaging in harmful environmental or social practices. A common criticism is that ESG funds frequently include fossil fuel companies or other businesses with dubious ethical track records. These contradictions lead many to question whether ESG is inherently flawed—if it's simply a marketing tool designed to assuage investor guilt rather than a framework for driving real change.

Is Profitability and Altruism Paradoxical?

Industry?grapples with a fundamental tension at its core: Can you be altruistic and seek to make money? This question pervades not only the show but the entire ESG debate. In theory, ESG investing attempts to marry these two goals. It suggests that companies can be profitable while also contributing positively to society. But in practice, the lines are far more blurred.

Down and Kay, the creators of?Industry, suggest that the financial world is simply not built to prioritise altruism. In the words of one character, finance professionals are programmed to ask, "Where is the weakness? How do I make money from it?" This mindset extends to ESG, where profit opportunities often overshadow the underlying ethical intentions.

The inherent contradiction of ESG is that it tries to impose moral goals on a system designed to be immoral. Capitalism is built on the pursuit of profit; when ESG objectives clash with financial interests, the latter typically prevails. Companies are incentivised to appear "good" rather than to be good, as the appearance alone often suffices to attract investment.

The fact that ESG has been co-opted as a marketing tool rather than a genuine force for change is a reflection of the broader contradictions of the financial system. Companies are not rewarded for changing their core business models; they are rewarded for giving the impression that they are addressing ESG concerns, even if those concerns remain secondary to their true mission: generating profit.

Is ESG Salvageable?

Despite the cynicism embedded in?Industry's portrayal of ESG, the show does leave room for a more nuanced interpretation. One of the show's real-world banking advisors suggests that while ESG can be corrupted, "the underlying force behind it is good." This sentiment reflects a more optimistic view: that ESG, while flawed, still holds the potential to drive positive change.

Many ESG proponents share this view, arguing that the movement's imperfections should not negate its merits. Yes, ESG is often diluted and misused, but at its core, it represents an important shift in how companies and investors think about their responsibilities. The rise of ESG has brought issues like climate change and social justice into the mainstream financial conversation. Even if the execution is imperfect, the fact that these conversations are happening at all is a step in the right direction.

Moreover, the backlash against ESG may be a sign that it is having an impact. The criticism that ESG distracts from the finance sector's "true North Star" of profit is telling—if ESG were genuinely meaningless, it wouldn't provoke such strong reactions. The fact that financial institutions are wrestling with the integration of ethical concerns into their operations suggests that ESG is pushing the boundaries of what is considered acceptable in the business world.

Conclusion: Is ESG Flawed or Just Imperfect?

Industry?asks viewers to decide whether ESG is inherently flawed or simply the victim of corporate co-option. In the real world, the answer may lie somewhere in between. ESG is undoubtedly imperfect, and its application often falls short of its lofty ideals. However, dismissing it entirely as a cynical marketing tool would be to overlook the importantconversations it has sparked about the role of business in society.

As the financial world continues to tussle with these questions, the future of ESG remains uncertain. It may never fullyescape the gravitational pull of profit, but that doesn't mean it's doomed to irrelevance. Instead, ESG may evolve, learning from its mistakes and growing into a more robust and meaningful framework for addressing the challenges of the 21st century. For now, though, the question remains: can businesses truly do good while doing well, or is ESG just another illusion in the cutthroat world of finance? The jury is still out.

Call to Action

If your business is seeking to do good and intends to explore the parameters of where doing the right thing can also be profitable, then reach out to OceanBlocks and OceanHubb Consulting for a meaningful discussion about the course of action, you could take to demonstrate how you can have the best of both worlds instead of sacrificing one for the other.