'ESG' is dead. Long live E, S, and G.

Nov 08, 2023

The tale of ESG in corporate America is one of an extraordinary rise and an almost-as-extraordinary fall.

Less than a decade ago, barely anyone outside the impact investing world used the term ESG. Today, the acronym is everywhere in corporate America. But almost as quickly as it came, ESG is bound to disappear again and be replaced by its constituent parts, having become politicized and polarized.

That is my conclusion from this week's Fortune Impact Initiative call, which gathered over 40 ESG executives under the Chatham House rule. Few executives defended continuing to use the term. But rather than bury the acronym's themes—environmental, social, and governance issues—most said they are doubling down on them in practice.

Put another way: Nothing is changing about our plans, those on our call agreed. But they are increasingly avoiding using the term "ESG" per se because it's become divisive and distracting.

"We don't talk about ‘ESG,’ but about the specific actions we are taking," one participant said, a sentiment echoed throughout the discussion. "Eliminating waste, reducing water consumption,…those are all good business decisions," another participant said. "There is no arguing about that. But we are taking a step back to think about what [the term] ‘ESG’ was meant to do."

It doesn't take a Ph.D. in management to understand the reluctance, even among those dedicated to these initiatives, to continue embracing the term. "The politicization of this topic has been quite extraordinary," as one participant put it. Everyone from presidential candidates to conspiracy theorists to activists with a "particular axe to grind" are now making the term a no-go even for its greatest advocates.

As a result, ESG has become a bit like Bruno in the Disney movie Encanto. We don't talk about it, no, no. But it is still with us, lurking behind each spreadsheet, permeating everything we do.

As one participant said, semantic complexities have created the "longest identity crisis ever experienced" among the executives in charge of this work. Before ESG, many of them looked after corporate social responsibility (CSR), which also fell out of favor. The group generally agreed that the best course of action is to stay pragmatic and focused on the business case for environmental, social, and governance initiatives.

"We talk about the specific actions we are taking," an executive shared. "We stay rooted in materiality, what we’re trying to achieve, and then talk about those facts."

They also try to avoid "trip wires" like cultural issues around sexual orientation, activists "harnessing the ESG apparatus to advance their cause," and the energy transition.

Fortune CEO Alan Murray, who moderated the discussion, noted, "Those are big wires. It's hard to cross the [ESG] field without tripping over them." And it points to another logical conclusion of the ESG debate: Whatever you do, and whichever language you use, "you’re going to alienate some people," as one PR executive said.

For some, that means wrangling over using the term ESG—or other hot-button terms, like "inclusion" or "climate action"—is not worth it. "There are many people that just don't want to be held accountable," as one participant put it. "The opposition will simply pivot."

But for most executives, the die is cast on the acronym ESG, and there's no turning back. And not just in corporate America. As an executive at a Page Society event I attended in Brussels this week said, "The topic of ESG has become a lightning rod."

It all leads to a rather odd conclusion: ESG is dead. Long live E, S, and G.

More news below.

Peter VanhamExecutive Editor, [email protected]

INBOX: WEF backing and ISSB make a play for global sustainability standards

The International Sustainability Standards Board took another step this week in ensuring its upcoming sustainability standards will become, well, the international standard in ESG reporting. On Wednesday, the organization signed a memorandum of understanding with the World Economic Forum (my former employer), enabling WEF corporate members to be among the first to help develop and provide the implementation of the ISSB's sustainability reporting standards. And, reading between the lines, the MOU also means the end of the "Stakeholder Capitalism Metrics" the WEF had initiated on ESG. "We back the ISSB workplan, and that gives WEF a seat at the table of writing the sustainability standards," Emily Bayley, Head of ESG Private Sector at WEF, told me. Our take: The MOU is one small step for the two organizations, but part of a gargantuan leap toward ESG standardization.

French oil giant TotalEnergies sells its entire climate tech portfolio (FT Sifted)

TotalEnergies has closed its climate tech venture capital arm TotalEnergies Ventures, and sold its portfolio of climate tech startups to Paris-based VC firm Aster, the Financial Times's Sifted reported late last week. "The move goes against the trend of rising appetite from oil and gas companies in backing climate tech startups," Sifted's Freya Patty wrote. "TotalEnergies Ventures portfolio includes companies like smart meter company Tado, hydrogen startup Sunfire and EV subscription service Onto."

In a commentary to the Impact Report, Paul Holland, chairman of venture investing firm Mach49 said he perceived the decision as a "net negative" on Total's ability to reach their stated goals as an organization. "[Climate venture tech] units, particularly those run by oil and gas companies, are a key way that legacy companies can participate more broadly in the reduction of carbon and the impact of carbon from their core products, and can participate more broadly in the overall energy transition."