In response to a piece by Robert Reich.

Piece by Robert Reich.

ESG (environmental, social and governance principles used to evaluate and make decisions about a company) has become mainstream. Not surprisingly, the commitment to ESG principles as part of a mission to deliver a positive impact to society has attracted criticism in the political arena in the United States. Some elected officials have taken issue with – and action against – what they deem “woke capitalism,” accusing ESG advocates of imposing their progressive views on businesses and society, and companies of using ESG as a marketing device to bolster their image.

Interestingly, it is not only those who are on the political right who call ESG into question. Robert Reich (former U.S. Secretary of Labor under Bill Clinton), wrote in a recent article that “Republicans are right about ESG – but for the wrong reason.” He argues that ESG does not do enough, because much of what is being done in the guise of ESG is voluntary, and what is needed are laws that align corporate transactions with public needs rather than private profits. According to Reich, investors are “unwilling to sacrifice shareholder returns to advance their environmental and social values. They want high returns and they want environmental and social goals. But they can’t have both.”

If Reich is right, where does that leave us given the current state of play? Do we wait for legislation that mandates companies to pursue environmental and social goals? Or do companies continue to take voluntary action to advance ESG?

Prioritizing ESG actions can create long-term value for shareholders and other stakeholders. Companies that reduce their carbon footprint, manage their water resources efficiently, and avoid harmful practices can mitigate their environmental risks while enhancing their reputation. Likewise, companies that foster DEI and ensure fair labor practices can increase their ability to attract and retain talent. If ESG action can have genuine positive impact for owners and others alike, why not keep doing it?

ESG is not inherently left or right, progressive or conservative, but it has become a flashpoint in the U.S. culture war. Conservatives who oppose ESG may do so not because they are against environmental or social goals, but because they view ESG as a Trojan horse for a political agenda, and a threat to profit maximization. Liberals who champion ESG may do so not because they are opposed to economic growth and shareholder value, but because of the belief that these goals should not come at the expense of the common good. 

ESG should not be used to deepen the cultural divide in the United States. Its recent politicization distracts from the real value it can provide. ESG is not a substitute for broader societal and governmental solutions, but an invaluable tool for guiding business and informing decisions.

Contact Clear Strategy today to learn more about how ESG can move your business forward.

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