ESG, unfavorable concept in corporate and investing world

Businesses and investors seeking to have a positive impact on the world are finding that environmental, social, and governance (ESG) factors are becoming more and more crucial. However, opinions on the usefulness and efficacy of ESG vary, particularly in the political area. From a political standpoint, corporate and investment circles are abandoning ESG.

ESG is politically dying, in part because some governments and regulators strongly oppose it, believing that economic growth should take precedence over social and environmental concerns. For instance, the US government has been rolling back numerous environmental regulations that impacted investors and businesses and withdrew from the Paris Agreement, a global agreement to combat climate change, in 2020. (BBC,2020) This action was interpreted as a betrayal of the ESG principles and a warning to other nations that they, too, could choose to forgo their obligations to cut greenhouse gas emissions and safeguard the environment. (CNBC, 2023) Many companies and investors implementing ESG practices had to deal with uncertainty and pressure to adjust to the new political landscape that the U.S. has created. 

The absence of precise, standardized metrics and standards that can be used in a variety of industries and geographical areas is the second reason that ESG is politically dying. The term "ESG" is broad and ambiguous, and different stakeholders will interpret it differently. Moreover, there is no agreed-upon definition or methodology for evaluating and disclosing ESG performance. This leads to misunderstandings and discrepancies among companies and investors who wish to adopt ESG practices and among lawmakers and regulators who wish to keep an eye on and enforce them. Furthermore, it can be challenging to compare and validate some ESG metrics and indicators because they are qualitative and subjective. (The Economist, 2023) ESG loses credibility and significance as a political tool in the absence of consistent and trustworthy data.

The fact that ESG is frequently viewed as a cost or a trade-off rather than an opportunity or a benefit is a third reason why it is politically dying. Rather than being a source of value creation and competitive advantage, ESG is seen by many investors and businesses as an additional burden that limits their operations and profitability. In a similar vein, rather than seeing ESG as a means of improving their standing and influence internationally, many politicians and policymakers see it as a threat to their national interests and sovereignty. (Financial Times, 2023) As a result, when faced with ESG initiatives and policies that demand a change in the status quo or call for compromises or sacrifices, they frequently oppose or subvert them.

In conclusion, political opposition, a lack of standardization, and perceptions as a trade-off are why ESG is dying in the corporate and investment worlds. As a means of addressing the environmental, social, and governance issues that the world is currently facing, these factors call into question the legitimacy and efficacy of ESG. Increased cooperation and coordination between various actors and stakeholders, as well as increased innovation and awareness-raising regarding the advantages and prospects of ESG, are necessary to resurrect ESG politically. (McKinsey & Company, 2023)