Analysis: ESG Reports Aren’t a Replacement for Real Sustainability
Corporate leaders face conflicting signals on the need for environmental, social, and governance reporting. A predictable backlash against ESG investing has arrived, with right wing politicians attacking ESG investors for promoting what they see as a “woke” agenda, and the SEC cracking down on “ESG-washing” by asset managers.
While more scrutiny of ESG claims is needed, corporate leaders and investors who focus solely on ESG disclosure are missing the point. ESG disclosure uses process-oriented output measures, such as whether a company has a policy on chemical management. These metrics, while necessarily broad, do not track performance. There’s a big difference between a company that has a chemicals management policy, and one that has a bio-based dye that reduces waste and water use (and cost) and creates new sales opportunities.
There is a growing consensus that ESG issues are material to corporate resiliency and competitiveness today. In fact, our research on the return on sustainability investment (ROSI), as reported in HBR, has demonstrated that embedding sustainability core to business strategy can create a competitive moat for business leaders by driving operational efficiency, innovation, employee engagement, supply-chain resilience, risk mitigation, improved sales, and other strategic business benefits.
Photo courtesy of geralt.