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The End of ESG?

LBS professor offers a balanced view of ESG and its significance


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The business world appears to have reached peak ESG (Environmental, Social, and Governance). Levels of ESG investing have rocketed, Chief Sustainability Officers are joining C-suites at pace, strategic decisions are being made based on their ESG impact, ESG metrics part determine executive pay, and companies are increasingly mandated to report on ESG (the non-financial risks and opportunities integral to their business).

At the same time developed economies are showing minimal signs of positive growth—a serious problem when over recent decades it has been economic growth that has driven a dramatic decline in malnutrition, poverty, infant mortality and other forms of deprivation around the globe. For ESG sceptics this raises the question: can a business world that puts people ahead of profits and prioritizes environmental sustainability, diversity and inclusion, income equality, and other ESG targets deliver the sustained growth the world economy needs?

A recent paper, The End of ESG, from London Business School’s Professor Alex Edmans, while acknowledging the importance of ESG, brings some valuable perspective to a subject that too often has led to politicization and extreme polarization—the left and the Davos elite supporting ESG while critics on the right branding it a ‘woke’ distraction.

ESG is both extremely important and nothing special

Edmans agrees that delivering on ESG goals is fundamentally important both to individual companies’ long-term prospects and to society at large. Yet he argues that other areas of concern such as unemployment, free trade, and government taxation and spending also have a major influence on company performance and an impact on society and the planet—and it is wrong to over emphasize ESG at the expense of other topics.

“ESG is both extremely important and nothing special,” maintains Edmans. “It’s extremely important since it affects a company’s long-term shareholder value.” On the other hand, he says, “It’s nothing special since it’s no better or worse than other intangible assets that create long-term financial and social returns, such as management quality, corporate culture, and innovative capability.” The logic of this is that companies should be equally praised for improving performance across a range of intangibles and that investor engagement on ESG factors shouldn’t be put on a pedestal compared to engagement on other value drivers.

We want great companies, not just companies that are great at ESG

A company’s ESG performance is important intrinsically and in how it affects the company’s impact on wider society. Business concern for ESG also helps promote the general public’s trust in business—important at a time when some have attributed many of the world’s problems from climate change to income inequality to business. However, the current over emphasis on ESG can appear to have more to do with virtue signaling than a real desire to drive company performance or help society.

As Edmans reminds us, “We want great companies, not just companies that are great at ESG. ESG investing is just investing, and as with all serious investing has to be based on a deep understanding of the fundamental long-term dynamics of the business.”

Companies should not be forced to focus resources on reporting matters that are not really relevant to value creation. Investment funds that use ESG metrics to guide their strategies should not be seen as necessarily more virtuous or deserving more protection than those that research other value drivers.

Finally, Edmans appeals for a calmer debate, less politicization, and a greater respect for other people’s views. “We can embrace differences of opinion about a company’s ESG performance just as we do about its management quality, strategic direction, or human capital management,” he intreats. “Reasonable people can disagree with each other about the factors that create value for both shareholders and stakeholders. More than that, they can learn from each other, thus enriching our knowledge on some of the biggest challenges facing business and society today.”


Access the full paper, ‘The End of ESG,’ Alex Edmans (January 2023). Financial Management, forthcoming. Available at: SSRN: or


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