How 'ESG' Became Meaningless

"ESG" was supposed to be a clear way for companies to explain their business decisions around environmental, social and governance considerations. How did the term go off the rails? Plus, the complicated truth of net-zero pledges.

How 'ESG' came to mean everything and nothing

At COP21 in 2015, world leaders emerged with an unprecedented sustainability promise: 196 nations pledged to take on climate change with the goal of net zero emissions by 2050.?

This signalled the beginning of the "ESG" movement: a focus on environmental, social and governance issues in business decisions. Across the globe, companies rolled out individual, ambitious campaigns towards net zero objectives; ESG-focused investment strategies ranged, but often included transitions to green energy and divestment from fossil fuels.?

US telecoms company Verizon, for instance, committed to generate renewable energy equivalent to 50% of its annual electricity consumption by 2025. French insurance company Axa vowed to cut ties with the coal industry by 2030. And after George Floyd's murder, global companies including Apple, AbbVie, Facebook, Pfizer, Johnson & Johnson and Procter & Gamble pledged a combined $340bn (￡279bn) to furthering racial justice causes.?

However, in the years since firms announced these splashy ESG commitments, often boosting share prices and bolstering corporate reputations, the term has created more confusion – even trouble – than positive change. In fact, some of those ESG commitments have created myriad problems for executives, says Alison Taylor, a clinical associate professor at NYU Stern School of Business, US. Increasingly, the ESG movement has been labelled as "woke" capitalism, and accused of enabling greenwashing.

As a result, Taylor says that even as businesses continue to issue net zero pledges , they've stopped labelling their business decisions as "ESG". This could spell relief for firms that have faced increasing backlash for leaning into the term while failing to make any substantial changes, particularly in a time of growing public expectations around corporate responsibility.

→Read more from Kristen Talman

The tough truth about corporate net zero pledges

Many companies are making wide-reaching commitments to not add to the total amount of greenhouse gases in the atmosphere. Operating in a world where carbon dioxide levels are rising, populations globally are experiencing heat records and extreme weather events are becoming increasingly common, some founders are making these moves based on their own ethics. Others are experiencing outside pressure from investors, employees and governments.

This means businesses are increasingly releasing sustainability plans that feature keywords such as "net neutral", "zero- or carbon-neutral". They typically commit to reaching the targets in the next 20-to-30 years.

Net Zero Tracker, an independent group that follows corporate pledges, found that half the world’s largest 2,000 publicly listed companies have a net zero target. In the past 16 months, the number of companies with these aims?has risen 40% from 702 in June 2022 to 1,003 in October 2023. The organisation reports the corporate world is in "phase three" of the transition: they've accepted a climate issue, then made a pledge; now, they're delivering on commitments.

While companies have taken strides to act on their pledges, there are still outstanding questions about the transparency and meaningful steps towards change, leading both consumers and even UN leaders to call for tougher standards and greater corporate transparency. There's optimism businesses can make an impact, but the road to developing and executing on concrete plans may be rocky.

→Read more from Kristen Talman

• Plus: Three big reasons Americans haven't adopted EVs rapidly

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– Meredith Turits, Editor, BBC Worklife