ESG has become highly politicized, with some critics concerned that ESG-related initiatives could hinder economic growth and corporate profitability, which can ultimately lead to reduced competitiveness and job losses, while some proponents argue that companies should be held fully accountable for their actions on society and the environment rather than shift them to taxpayers and communities. But above and beyond the politics, businesses have very real ESG problems and are struggling with the risks and opportunities inherent in ESG initiatives.
ESG has quickly become a priority for business leaders as the politicization of ESG has intensified, there has been a growth in ESG-related regulations, and key stakeholders (i.e., investors, employees, customers, local communities, regulators, NGOs, and suppliers) are increasingly holding organizations accountable for their behaviors and impact on the environment and society. However, due to the challenges associated with ESG (i.e., lack of sufficient data and financial ROI, politicization, and multiple frameworks), some business leaders struggle to understand the benefits and risks that result from supporting any ESG-related issue. Professional service providers have developed ESG-related service offerings to help guide organizations through this whirlpool of regulations and confusion. These ESG approaches vary from reactive compliance-focused frameworks to more proactive strategic initiatives looking at longer-term value — though most ESG projects are still reactive. Pacesetter Research recently released a report on ESG: Environmental (the first of a three-report series), which found when organizations take a more strategic, purpose-driven approach to ESG, they may gain advantages in both risk management and market opportunities compared to those only reacting to regulations. Admittedly, ESG is a relatively new area in professional services, and evidence for the impact of these services has not been wholly conclusive yet, but the Pacesetter team found many examples by Innovators in this space where they were able to demonstrate real ROI. This is especially important as many organizations contemplate aligning their brand to support ESG principles.
