JULY 14 — Walk into any corporate boardroom today. You will hear a universal hymn. It is not about profit margins or market share, at least not directly. It is about ESG – Environmental, Social, and Governance. Asset managers pledge allegiance. CEOs tout their ratings. Supply chain contracts now come with an ESG rider. On the surface, this looks like a moral awakening. But beneath the virtuous veneer, a more uncomfortable question simmers: Is ESG a genuine roadmap to a better world, or just the most sophisticated risk management tool Wall Street ever invented?
The modern ESG movement emerged from the belly of finance. The term “Environmental, Social, and Governance” was first coined in a 2005 landmark study titled “Who Cares Wins”, conducted by the United Nations in collaboration with major financial institutions like Goldman Sachs and Morgan Stanley. The premise was pragmatic: environmental disasters, labour strikes, and corrupt governance destroy shareholder value. ESG was about managing volatility. The agenda was never secret: it was to create a standardized framework for capitalists to price externalities. In other words, to turn polar bears and unpaid wages into line items on a balance sheet.
It was not a conspiracy to save the planet. It was an agenda to preserve the system. The logic was sound: if a company poisons a river, regulators fine it, communities sue it, and its stock price collapses. By measuring ESG, investors hoped to spot that collapse before it happened. This brings us to today’s crisis of “genuineness”.
For every company genuinely rewiring its energy supply, a dozen are engaged in “greenwashing”. They slap a net-zero pledge on a website, buy cheap carbon offsets from a forest that was never in danger, and call it a day. The “Social” and “Governance” letters have been stretched so thin as to be meaningless. Does a company with a diverse board but a dirty coal plant score well? It depends entirely on which ratings agency you ask – and they often disagree spectacularly. Today, ESG funds have also been caught holding shares of fossil fuel giants and mining conglomerates because of their excellent “Governance” and robust “Social” protocols for workers. They are well-managed risks, not clean businesses.
So, is the agenda corrupt? Not originally. But the machinery of finance has done what it always does: it has prioritised the metric over the outcome. If you cannot measure it perfectly, you fake it convincingly. Will ESG lead to more effective decarbonisation? Not in its current form, but not for the reasons cynics think. ESG, as a disclosure framework, is passive. It tells you what a company is doing. It does not force a steel mill to stop belching carbon. It merely asks the mill to disclose the belching and have a policy about it. The market then decides whether to punish or reward.
And the market is fickle. When energy prices spiked recently, investors fled “green” funds and rushed back into oil and gas. The ESG premium evaporated overnight. Why? Because decarbonisation is a long-term collective good, but quarterly earnings are a short-term individual necessity. Effective decarbonisation requires regulation, carbon taxes, infrastructure bans on coal, and industrial policy. ESG, at best, is a supporting actor. It provides data. It nudges behaviour. But it is not a mechanism for systemic change.
In fact, ESG might even be a distraction. By giving companies a low-cost way to appear green – through glossy reports and membership in climate pledges – it relieves the pressure for hard, expensive action like shutting down a profitable but dirty factory.
So, where does that leave us? The development of ESG was not a Trojan horse for socialism, as some critics howl. Nor is it a panacea, as its evangelists claim. It was a financial innovation born of self-preservation, later hijacked by marketing departments, and now struggling under the weight of its own contradictions.
If we want genuine decarbonisation, we must stop fetishizing the acronym and start auditing the action. Ask not “What is your ESG rating?” but “How many tonnes of CO2 did you actually remove from the atmosphere last year?”
Until then, ESG will remain what it has always been: a mirror. It reflects the pressures of the moment – investors, activists, regulators – but it does not, by itself, change the physical reality of a warming planet. The agenda behind ESG may have been prudent risk management. But the agenda we need now is survival. And survival is not a metric to be managed; it is a condition to be built, one genuine, difficult, decarbonised brick at a time. The business fraternity loves a hot topic. It is time they fell in love with a cold, hard fact.
*The author is affiliated with the Tan Sri Omar Centre for STI Policy Studies at UCSI University and is an adjunct professor at the Ungku Aziz Centre for Development Studies, Universiti Malaya. He can be reached at [email protected].
**This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
