Idea in Brief

The Context

ESG programs are increasingly criticized across the political spectrum—both for not doing enough and for pushing a liberal agenda. But the need for clear alignment between a company’s financial performance and its ESG performance remains.

The Challenge

An ongoing debate between using single materiality, which focuses on shareholder value, or double materiality, which includes societal impacts, is mired in political and measurement complexities, with no consensus in sight.

A Pragmatic Approach

Clearly define corporate purpose, improve transparency in ESG reporting, and engage stakeholders constructively. These strategies help companies manage ESG pressures by focusing on material issues that affect shareholder value while also acknowledging and addressing broader societal impacts.

It’s been a rough few years for ESG—the popular shorthand for measuring and managing a company’s environmental, social, and governance performance. In the United States the term has become a punching bag for both sides of the political aisle. For those on the left, ESG doesn’t go far enough in forcing business to address major societal challenges, particularly climate change. For those on the right, it represents an insidious attempt to make companies adopt a liberal agenda, thus distorting markets and free competition. And critics of all stripes have complained about greenwashing—the practice of overstating ESG efforts by companies and investors. This barrage of criticism has caused ESG to lose its luster for many executives. Some even engage in “greenhushing”—they no longer talk publicly about their ESG initiatives.
A version of this article appeared in the September–October 2024 issue of Harvard Business Review.
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