ESG Still Matters, It Always Mattered

Take good care of your home and community and leave it better than you found it. Treat your family and friends well, with respect, empathy, and honesty. Give diverse voices a say in what happens, as they likely will be additive.?And when your good intentions don’t work out, say so, and commit to doing better.

Who would have issues with any of these notions?

Environmental, social, and governance—or ESG—has been a growing part of the corporate landscape in recent years. Most of the Fortune 500 voluntarily disclose their ESG progress annually, because they know that environmental sustainability, social justice, and a framework of accountability builds value for their businesses. And it strengthens the social license every business needs in order to operate.

But ESG has received some pushback lately. Its detractors have noted that ESG-oriented investment funds have suffered in the recent stock market downturn.?For some, ESG has even become a vague boogeyman term in terms of more regulatory overreach.?

But here’s the thing. Planting trees matters. And yep, long-termism never goes out of style.

Of course, ESG has a lot of work to do when it comes to accurately measuring and reporting its results. Companies that use ESG language as a form of greenwashing are not helping anyone. (Which is why the SEC is putting into place regulations to make sure that companies will be held accountable for any false ESG reporting.) There is still a significant lack of agreement between companies on the very definition of ESG. And, ESG programs themselves cannot always be tied directly to a material increase in profits or reduction of costs.

All of these arguments contain a kernel of truth, but they also overlook something very important. ESG is not an end unto itself. It is a means to an end: building more resilient, accountable, and valuable businesses. On that front, ESG has proven remarkably successful in terms of defending the social license to operate, to improving financial performance, and becoming more measurable.

That is why ESG is an important evaluation criterion for Ethisphere’s World’s Most Ethical Companies application process, but it is not the only one. When done right, ESG integrates itself into a holistic set of enterprise-wide practices, policies and processes that drive value creation. A quick look at our Five-Year Ethics Premium graph should dispel all doubts. It shows that the World’s Most Ethical Companies honorees outperform an index of comparable large-cap companies by 24.6 percent. While each of these companies is on a journey, the journey to better matters.?

Whether ESG retains its current name or morphs into something else, the ideals it embodies are here to stay because business integrity is here to stay. Businesses with strong ethics perform better. We have the data that proves it. And with each passing year, that truth becomes more and more self-evident.

So, ESG, what’s it all about????

It’s about implementing practices that advance the journey to better. Better for companies, for stakeholders, and for everyone. And that’s why ESG matters.