Written by Ciaran McCale, Chief Marketing & Communications Officer at ESG Book.
In his 2024 annual letter to investors, Blackrock’s CEO Larry Fink conspicuously avoided reference to ‘ESG’. An early advocate of the sustainable investment movement with over $10 trillion in assets under management, the message from the world’s largest money manager was clear: terminology matters, and ESG had become too political, and too problematic.
The 2004 UN report that is credited with coining the term ‘ESG’, came with recommendations from the financial industry on how to better integrate environmental, social, and governance issues in analysis, asset management, and securities brokerage.
Over the subsequent two decades, ESG has emerged as one of the most significant trends in capital markets history, with global ESG assets surpassing $30 trillion in 2022, and on track to exceed $40 trillion by 2030 – over a quarter of projected $140 trillion total assets under management – according to Bloomberg.
Since 2023, however, the ESG movement has experienced turbulence on both sides of the Atlantic, with momentum slowed by a significant backlash against green policies and climate disclosures in the U.S. and Europe. Last year, for instance, saw more than two-thirds of U.S. state legislatures consider anti-ESG legislation, with 14 states enacting laws restricting public investment or procurement processes from considering ESG factors.
The knock-on effect has seen some companies distance themselves from even using the term – giving rise to the notion of ‘greenhushing’ – and inflows to ESG-labelled funds taking a direct hit. Meanwhile, across the global media landscape, as PHA Group’s research shows, the number of negative stories around ESG has increased, with the Financial Times recently asking, “Who Killed the ESG Party?”.
Reports of ESG’s death, however, are greatly exaggerated. Despite polarised sentiment, heightened by a year of worldwide elections, the integration of ESG across capital markets is only set to mature in the years ahead, driven by rising investor and consumer demand, real economy changes, and fast-evolving regulation.
As concerned as Fink and others are about the partisan misuse of ESG, the debate surrounding it is one that has needed to happen. ESG was misunderstood by Wall Street long before it was misunderstood by Washington and beyond. The concept of ESG began with a simple premise: more information for better informed decision-making, with the objective of enabling investments aligned to sustainable development, and not the pushing of ethics or values.
For ESG to live up to its original premise, ESG data needs to be as abundant as financial data. Just as we see granular information on everything from a public company’s debts to its investments, we also must get the full picture of non-financial factors. Not just emissions and other environmental details, but exposure to commercial and reputational risks as varied as diversity, labour practices and tax governance. With mandatory regulation starting to bite, this is starting to happen on a large scale.
Equally, the ESG market must be prepared to embrace its own faults, and define its own name. If we all decided to stop using the term ‘ESG’, it would only embolden those that want to turn a powerful tool for better business and investment decisions into a political lightning rod.
If we get it right, ESG will swing from a culture war topic, amplified by media outlets that should know better, to a bipartisan issue that can deliver a more sustainable future. After all, better data will always lead to better-informed decisions.
We can’t do this by changing ESG’s name. But we can by changing ESG for the better.
You can download our free eBook ‘Future-proofing business: The media’s evolving relationship with ESG’ here.