THREE letters, ESG (environmental, social and governance), have become increasingly influential in how investors, companies and regulators assess environmental, social and governance risks and opportunities.
Why has ESG gained such prominence? Is it truly advancing the world’s sustainability agenda? Its rapid rise is not purely altruistic. Investor demand, regulation and the growing recognition of environmental and social risks are all helping to push ESG further into corporate strategy and financial decision-making.
First, money speaks louder than morals. Asset managers like BlackRock, Vanguard and State Street collectively manage more than US$20 trillion in assets. Their growing use of ESG considerations in investment analysis, stewardship and corporate engagement has helped push sustainability into the mainstream of global finance.
Second, the talent war. Gen Z and millennials – projected to make up 75% of the workforce by 2030 – are voting with their feet. They refuse to be cogs in a machine that is destroying the planet or ignoring social injustice. Companies that cannot show a credible ESG commitment lose young talent to competitors that can. That scares the C‑suite.
Third, regulation is coming – fast. The European Union’s Corporate Sustainability Reporting Directive, the US Securities and Exchange Commission’s climate disclosure rules and emerging mandatory due diligence laws across Asia mean ESG is no longer optional. It is becoming a licence to operate. For business leaders, the message is clear: adapt now or face greater disruption later.
So yes, self‑interest is a big part of the ESG boom. But when properly aligned, self-interest can move mountains. ESG’s true role in advancing the world’s sustainability agenda is not to be the final solution but to translate sustainability into business terms and accelerate action.
For decades, sustainability lived in NGO reports and UN conferences. Grand goals like the Sustainable Development Goals were noble but remote from quarterly earnings calls. ESG has done something remarkable: It has translated “saving the planet” into the language of business – risk, return, reputation and resilience.
That translation has unlocked capital at a scale that governments alone could never provide. When a pension fund demands that a portfolio company reduce water intensity or disclose board gender diversity, that changes real behaviour on the ground.
But ESG is only a compass. It points towards a better direction. It is not the destination itself. Many companies treat ESG as a checklist or a ratings game: install one female board member, publish a glossy climate pledge, buy some carbon offsets and declare victory. That is ESG theatre, not sustainability. The true role of ESG is threefold.
ESG exposes hidden liabilities that traditional accounting misses. A company with poor water management may look profitable today, but when drought shuts its factory tomorrow, the market will finally see the cost. ESG pulls that future risk into the present.
Trillions of dollars are increasingly flowing towards cleaner, fairer and more transparent businesses, shifting capital away from yesterday’s extractive and exploitative models and towards tomorrow’s more regenerative ones.
ESG reporting, for all its flaws, creates a paper trail. Once you measure and disclose your carbon emissions or your gender pay gap, you cannot unknow that data. Stakeholders – investors, customers and activists – can hold you to it. That is how pressure builds. However, if ESG becomes merely a branding exercise, it will not advance sustainability; it will delay it because it gives the illusion of progress while the machinery of environmental destruction churns on.
What must change? Three shifts. First, mandatory, comparable standards. The International Sustainability Standards Board’s work to create a global baseline is essential. Without standardisation, ESG remains a beauty contest.
Second, enforce real consequences. When a company lies about its ESG performance, it should face the same fraud penalties as it would for lying about its financial performance.
Third, focus on material issues. Not every ESG factor matters equally for every company. For a water utility, the “S” and the “E” are existential. For a tech firm, governance and data privacy may dominate. The sustainability agenda advances fastest when companies drill into their material impacts, not just what looks good on a brochure.
ESG serves a deep business need – to navigate a world indifferent to inequality towards a genuinely sustainable one. Bridges do not build themselves and they do not guarantee arrival. We still need courageous regulators, honest activists, ethical investors and citizens who refuse to settle for glossy lies.
The true role of ESG is not to make businesses look sustainable. It is to make them sustainable. And that journey has only just begun.
Prof Datuk Dr Ahmad Ibrahim 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. Comments: letters@thesundaily.com