ESG: Three letters everyone loves to hate

By Peter McKillop

When we started Climate & Capital three years ago, we knew one thing for sure: We were not going to name it after some bizarre acronym like ESG or use the terms Impact and Sustainability, words so vague that they can be stretched and twisted into any form, Gumby-like.

Our instincts proved correct. ESG is dead.

All this is the best news possible for the climate crisis. A snowballing coalition of skeptics has called out ESG as a failure — it does not help the environment, society or governance. It’s not a good investment and does no “good.”

Why? ESG was largely greenwash before the term was even invented. In fact, the term greenwash was created when people started to see the first wave of ESG rhetoric embraced by governments, companies, banks and foundations. It was a framework of all carrots but no sticks. What CEO, what board and what climate NGO or academic they funded would disagree with this one-size-fits-all label of responsible corporate citizenship? Companies could have their cake of corporate goodwill and eat the cake of business-as-usual prosperity.

Talk, like money, was cheap in the ESG era. It was incredibly lucrative to those holding large pools of capital — companies, pensions, governments. ESG incentivized delay in confronting the real risk of climate, gross income inequity and a breakdown in civil governance.

The ESG party is over

All this is coming to a crashing end. On Wall Street, management consultants are sharpening their pencils and quietly advising companies to rethink all those new sustainability hires as the end of cheap credit begins to trickle down to the bottom line.

But on a deeper societal level, there is a growing realization that every element of ESG has deteriorated since the term first came into vogue. You don’t need esoteric metrics anyway to understand that every ESG signal is flashing a bright red.

Environmental risk is more than obvious as extreme weather events wreak continuous havoc around the world. Socially, democracies are under stress. Autocracies are hardening in Russia and China.

The rise of real impact

We are now in a new world defined by continental war in Europe, the emergence of the most important non-Western global power in 1,000 years — China — and societies are reeling from exponential jumps in technology and knowledge. And, finally, the greatest common denominator of all — climate change — is deadlier than ever.

But humans have proven to be amazingly resilient. Over the next generation, we will see unprecedented efforts of resiliency and survival.

The Radical Center

In America, we will see a convergence to the center. Radical because its supporters preach pragmatism, not divisiveness. Pragmatism, resiliency and impact are the new buzzwords. This new center will be defined by political outcasts like Republicans Mitt Romney, Liz Cheney and Democrat Joe Manchin.

The resurgence of the American dream and European social democracy

Values that have made Europe and America great are now reasserting themselves. Europe is moving ahead with a fascinating experiment in collective social democracy and state industrial policy — a regime guided by regulation with teeth and a regional social contract based on universal human rights. In the U.S., the fog of ESG has lifted, and we are seeing the re-emergence of a brutal but powerful economic model in which inequality will only get worse but economic opportunity will never be greater.