See on LinkedIn

Saving the Planet or Just Saving Face? The ESG Dilemma

OK, before I get into this, my first challenge was to find an appropriate title.
I did think of ‘ESG: A Necessary Nuisance or the Key to Corporate Success’ but thought I could do better! Then ‘More Paperwork or Profit Power? Unpacking ESG’. Being from a healthcare background, I thought ‘Is ESG a Headache or a Cure?’ But I landed on ‘Saving the Planet or Just Saving Face’.

It feels that every conversation I have with colleagues in business has some kind of environmental and social governance aspect to it. Each person had a different take on what it meant to them or their company, but all agreed it was front and centre in their investors’ minds. It’s clear that Environmental, Social, and Governance (ESG) factors have become central to investment, corporate strategy, and policymaking. As global challenges such as climate change, social inequality, and corporate governance scandals become increasingly significant, companies, investors, and governments are paying closer attention to the long-term sustainability of business practices. So, if ESG represents a framework through which organisations evaluate and manage risks and opportunities in the areas of environmental sustainability, social responsibility, and corporate governance, how do we prevent it from being a tick-box exercise and make it a living part of our businesses?

I asked colleagues for an overview of ESG factors, their growing importance, and their impact on their business practices. I asked each what ESG meant to them. I got various answers but summarising it down to the three broad categories, I got the following:

Environmental (E): This was such a broad church, but all agreed that this factor evaluates a company’s environmental impact and sustainability practices. The list consisted of projects to reduce carbon emissions, how they handle and manage waste, either in the production of their products or the waste produced once their product is sold. Conservation of resources and mitigating the impacts of climate change. The impact their office or factory also has on the local community. They felt their company was increasingly held accountable for their role in global environmental challenges, such as reducing greenhouse gas emissions and transitioning to renewable energy sources.

Many years ago, I worked for a company that was pretty forward-thinking. All water from the company’s roof was collected and used in the washrooms for flushing and hand washing, and a geothermal heat source kept the building warm in the winter and powered air conditioning in the summer. It was assumed this was all just to save money and increase profit. I guess they could see the positive impact this would have.

Social (S): The social aspect replies I got focused on the relationship a company has with its employees, customers, suppliers, and communities. They included labour practices, human rights, diversity and inclusion, community engagement, and customer satisfaction. Some felt the company’s social responsibility can also extend to ensuring safe working conditions and fair treatment of employees.

The same company I mentioned, which was forward-thinking on the environmental side, also understood the impact the large workforce had with local traffic. Staff arriving and leaving the site caused traffic jams in the mornings and evenings, much to the annoyance of the local community. To mitigate this, they paid the council to build a roundabout, problem solved, and a big tick from the locals.

Governance (G): They all agreed that this referred to how a company is managed and overseen, focusing on leadership structure, transparency, ethics, executive compensation, and shareholder rights. Recent Netflix drama series and documentaries have highlighted the horror stories of poor governance, so having strong corporate governance ensures that companies are accountable and operate with integrity, minimising the risks of corruption or fraud.
So, I understood what ESG meant to them, but why was it important?
The importance of ESG factors has gained momentum over the past decade due to several driving forces:

Global Sustainability Goals: ESG can clearly play a significant role in achieving global sustainability goals, particularly those outlined by the United Nations (UN) in the Sustainable Development Goals (SDGs). The SDGs, which aim to address global challenges such as poverty, inequality, and climate change, are closely aligned with all those ESG principles mentioned by colleagues. So, companies must align their practices with these objectives (United Nations, 2015).

Investor Demand: Investors are increasingly incorporating ESG factors into their decision-making processes, driven by a growing recognition that long-term financial returns are closely linked to sustainability. Research has shown that companies with strong ESG performance often outperform their peers in the stock market, leading to increased investor demand for ESG-compliant companies. According to a report from Morningstar, funds that integrate ESG considerations have seen substantial growth in recent years, reflecting a broader trend in sustainable investing (Morningstar, 2021). So, with investment finance in high demand, companies that can demonstrate they comply with ESG principles are more likely to get a slice of that pie.

Risk Management: One colleague who worked in risk management said that companies that fail to address ESG factors may face significant risks, including regulatory penalties, reputational damage, and financial losses. For instance, failure to comply with environmental regulations or exploitative labour practices can lead to costly lawsuits and fines. So, for instance, manufacturing strategies have to be looked at in more detail.
A robust ESG strategy allows companies to anticipate risks and reduce exposure to negative outcomes, ultimately enhancing long-term stability.

Consumer Preferences: Consumers are increasingly prioritising ethical and sustainable practices when making purchasing decisions. Studies have shown that younger generations, particularly Millennials and Gen Z, are more likely to support brands that align with their values, including sustainability and corporate responsibility (Nielsen, 2015). This shift in consumer behaviour is prompting companies to integrate ESG considerations into their product offerings and marketing strategies.

ESG and Corporate Performance
Other colleagues were quick to point out that incorporating ESG into corporate strategy is not just about risk management—it can also provide significant business opportunities too. Companies that embrace sustainability and social responsibility often experience increased customer loyalty, better employee retention, and improved operational efficiency.
In addition, ESG initiatives can unlock new revenue streams by promoting innovation in green technologies and social impact products. Research has indicated a positive correlation between strong ESG performance and financial success.
According to a meta-analysis conducted by Oxford University and Arabesque Partners (2015), companies with robust ESG practices tend to have better operational performance and lower cost of capital, while also showing higher stock price performance. This suggests that ESG factors can contribute to both financial returns and long-term value creation.

A Shift in Perspective
As someone who has spent decades in the business world, I must admit I was initially sceptical about the real impact of ESG. For years, the focus was on profits and growth—hard metrics that were easily understood and measured. But as I've watched the landscape evolve, and spoken with colleagues in different industries, it's become clear that ESG isn't just a passing trend or a box to tick. In fact, it’s a more sustainable model for long-term growth.

What I’ve come to appreciate is that ESG forces companies to look beyond quarterly profits and start thinking about the broader implications of their actions. While it may have seemed like a soft or idealistic approach at first, I’ve seen firsthand how companies that embrace ESG not only perform better financially over time but also foster a more loyal workforce and customer base. It’s not about sacrificing profits but rather aligning them with the values of a more socially responsible world.

Thinking through all the discussions with colleagues, I am realising that ESG isn’t just another hurdle to jump through, but rather, a tool that can unlock hidden potential and increase productivity when leveraged correctly. Initially, I believed ESG initiatives to be costly or time-consuming, adding to the pile of regulations and obligations that businesses had to manage. Working in a regulated healthcare environment, there were many; this felt like yet another one. But over time, I’ve learned that when approached strategically, ESG can actually streamline operations and drive innovation. For instance, companies that focus on reducing waste and energy consumption not only reduce their environmental footprint but often discover ways to cut costs and improve operational efficiency. The company I mentioned at the beginning may have started out on a cost-saving exercise, but they reduced their water bill to near zero. Not a bad saving. The social aspect of ESG, with its emphasis on employee well-being and diversity, has also shown me how fostering an inclusive culture can enhance collaboration, creativity, and employee retention—ultimately leading to higher productivity.

Another pivotal realisation I’ve had is how integrating ESG practices can significantly increase customer respect and loyalty towards a company. In today’s marketplace, consumers are no longer simply interested in the price and quality of a product—they want to know the story behind it. They want to understand the values of the company they’re supporting, and they increasingly expect businesses to align with ethical, environmental, and social standards that reflect their own beliefs. By embracing ESG, companies can differentiate themselves by demonstrating a commitment to the greater good, which in turn builds trust and respect.

Everyone I spoke to agreed that when customers see that a company is genuinely working to reduce its carbon footprint, improve labour practices, or contribute to the well-being of the community, they feel that their purchasing decisions are making a positive impact. This respect doesn't just come from meeting sustainability goals; it’s about transparency, honesty, and consistency in how a company aligns its operations with its values.

From reading some of the research, consumers are particularly drawn to businesses that put people and planet before profits, and these companies often see not only increased loyalty but also the ability to charge a premium for their products or services because customers are willing to pay more for brands they trust.
So do we feel that those companies that have embraced ESG principles are standing out as leaders? Far from being a burden, ESG can actually become a powerful differentiator, helping to build stronger, more meaningful relationships with customers who want to be part of something bigger than just a transaction.
It’s taken me a while to see the bigger picture, but now I understand that integrating ESG into business practices is an investment in resilience—something that the next generation of leaders will continue to refine and benefit from.
I asked colleagues how challenging it was for them to integrate certain ESG principles. It certainly wasn’t easy.

They all mentioned a Lack of Standardised Metrics: One of the major obstacles to ESG integration must be the absence of standardised reporting frameworks.
While organisations such as the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) have developed guidelines for ESG reporting, inconsistencies across industries and regions make it difficult for investors to compare companies' ESG performance (Eccles & Krzus, 2018).
I had read and experienced Greenwashing, especially when looking at changing energy supplier. They all claimed it was from renewable energy sources, yet we are told around 6% of UK energy is renewable. So, if they were all offering it, were they lying?
So, "greenwashing," is on the rise, where companies claim to be more environmentally friendly or socially responsible than they are. This misrepresentation undermines the credibility of ESG efforts and makes it harder for stakeholders to trust corporate sustainability claims. The rise of independent ESG ratings agencies, such as MSCI and Sustainalytics, is helping to address this issue by providing more accurate assessments of a company’s ESG performance.

I still hear discussions with Short-Term Focus, especially with start-ups, where surviving the next quarter is a challenge: Many companies still prioritise short-term financial results over long-term sustainability. This short-termism can hinder the adoption of comprehensive ESG strategies, as the benefits of ESG investments may not be immediately apparent in financial terms. However, as the evidence of long-term ESG value becomes clearer, more companies are beginning to integrate ESG into their core business models.

The future of ESG is promising, with increasing regulatory pressure, growing investor demand, and heightened consumer awareness all contributing to a stronger focus on sustainable practices. Governments are introducing regulations such as the EU Taxonomy for Sustainable Activities, which aims to classify and standardise sustainable investments across the EU (European Commission, 2020). Similarly, the Task Force on Climate-related Financial Disclosures (TCFD) has created guidelines for companies to disclose climate-related risks and opportunities in their financial reporting (TCFD, 2017).

As ESG considerations continue to evolve, we can expect greater integration of sustainability into business models, increased transparency in reporting, and stronger enforcement of corporate accountability. Companies that embrace these trends will be well-positioned to thrive in an increasingly sustainable and socially conscious world.

Conclusion
ESG is no longer a niche concern but a fundamental element of corporate strategy, investment decisions, and regulatory policy. As the global community faces complex challenges in the realms of climate change, social equity, and governance, ESG offers a pathway toward a more sustainable and responsible future. The growing emphasis on ESG factors reflects a shift in how businesses operate, investors make decisions, and consumers interact with companies. By prioritising ESG, organisations can unlock new opportunities, manage risks more effectively, and contribute to a better world.

References:

1. United Nations (2015). Transforming our world: The 2030 agenda for sustainable development. Available at: https://www.un.org/sustainabledevelopment/sustainable-consumption-production/ (Accessed: 24 March 2025).

2. Morningstar (2021). Morningstar Report on ESG Investing: The Rising Demand for Sustainable Investment. Available at: https://www.morningstar.com/lp/esg-investing (Accessed: 24 March 2025).

3. Nielsen (2015). The Nielsen Global Corporate Sustainability Report: Consumer Preferences. Available at: https://www.nielsen.com/us/en/insights/article/2015/the-sustainability-imperative/ (Accessed: 24 March 2025).

4. Oxford University and Arabesque Partners (2015). From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Outperformance. Available at: https://www.arabesque.com/research/ (Accessed: 24 March 2025).

5. Eccles, R.G. and Krzus, M.P. (2018). The Reporting of ESG Factors: A Framework for Corporate Reporting. Journal of Applied Corporate Finance, 30(2), pp. 26-34.

6. European Commission (2020). EU Taxonomy for Sustainable Activities. Available at: https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance (Accessed: 24 March 2025).

7. TCFD (2017). Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures. Available at: https://www.fsb-tcfd.org/publications/final-recommendations-report/ (Accessed: 24 March 2025).

8. MSCI (2025). MSCI ESG Ratings. Available at: https://www.msci.com/esg-ratings (Accessed: 24 March 2025).

9. Sustainalytics (2025). Sustainalytics ESG Research & Ratings. Available at: https://www.sustainalytics.com/esg-ratings (Accessed: 24 March 2025).