Usage of the term ESG has slowly grown quiet. The fading of ESG during the 2024 Davos (World Economic Forum summit) was an apparent indication of how businesses are shying away from a movement that was surging with great force five years ago. According to FactSet, there has been a notable decline in ESG comments for S&P 500 companies during their earnings conference calls. After peaking in Q4 2021, there was an almost-uninterrupted decline, from 155 companies making ESG comments to a meagre 61 companies in Q2 2023.
Joining DEI and Critical Race Theory, ESG has slowly but surely entered the murky waters of politicised buzzwords. The rancor against ESG has driven many major corporations, including Walmart, Ford, and Harley-Davidson, to step back from previous DEI commitments. DEI is slowly being replaced by more general concepts such as People and Culture, Talent, and Inclusive Culture.
Brands and concepts have evolved throughout history. They evolve to course-correct, sometimes to shed off unnecessary baggage, and to align with new market realities. ESG is not an exception. Long-term thinking seems innate to human nature, therefore sustainability will remain a consideration in all human endeavours, albeit with evolving phraseology.
Revisiting the Triple Bottom Line (TBL)
Beyond the howls and cheers around ESG and DEI, our gaze has to be fixed on sustainability. Boards need to think long-term, yet operate in an ever-changing and variegated world: technology, environmental laws, consumer behaviour, and talent management are evolving rapidly.
The Triple Bottom Line (TBL) is a concept that sought to change the business system from a profit-only approach to a more comprehensive one. It eyes long-term prosperity by recognising and acting to reconcile the economic, social, and environmental features of our world. In this regard, businesses would factor in the social and environmental implications alongside their profit-making intents.
In a sense, the triple bottom line is an internal thermometer for a company, measuring its success beyond profits. ESG on the other hand is a market-oriented tool that offers products and accountability to stakeholders including investors and the general public. This distinction is important. Unfortunately, some corporations adopted ESG as an overriding theme, applied as a trade-off mechanism where a business could be detrimental to E while emphasising accomplishments and plans for S or G.
Separating Individual Features of ESG
From the outside, it is easy to misconstrue the character and prevalence of ESG-labelled products. However, beyond the first page, the common practice is to present individual responsible investment products themed around issues such as Sustainable Energy and Sustainable Healthcare.
Most products do not present a holistic assessment of companies based on E factors, S factors, and G factors. Products have leanings towards some aspects of ESG, with a potential deficiency in other ESG aspects. Meanwhile, the bullish assertions presented to the general public and the details for investors are quite different. Additionally, the definitions and objectives of portfolios often contain cautious language such as, “may increase investment value,” “under normal market conditions,” and “aims to invest a minimum 75% of assets in securities believed to be sustainable.” This approach is becoming even more prominent with the reduced prominence of ESG as an overarching theme, especially in the US. Funds and sub-funds are emphasising specific themes in their portfolios such as the exclusion of coal-related companies. This avoids attracting attention from ESG opponents, while still tailor-making portfolios based on particular investor sensibilities.
Rebranding
ESG investing is a subset of the wider category of responsible investing, with the objective of safeguarding long-term returns on investment. It is thus primarily a risk mitigation strategy, while also pursuing opportunities associated with the unique space. ESG is also different from impact investment which has a direct non-financial objective such as environmental protection, alongside financial benefits. The ESG portfolio is an assemblage of companies that overcome a defined hurdle crafted with the presumed ideals of the shareholder. The unique position of ESG market tools in simultaneously managing investment risks for investors and upholding wider societal goals comes with multiple challenges.
One challenge in public markets with regards to ESG is the heterogeneity of shareholder ideals and the problem of who defines them. Contentious issues such as weapon manufacturing, labor unions, and racial discrimination are often without a definitive stance among the general public. This has resulted in backlash for perceived political influence and the potential use of ESG as a stepping stone for establishing social credit scores in the future. For asset managers seeking to avoid the legal consequences of ESG-labelled products or exclusionary criteria that may be seen as breaking antitrust laws, avoiding the terminology altogether has been the easiest course.
Disassociation
Part of the decline in ESG can be attributed to quiet disassociation from groupings that have championed controversial issues. The formation of big coalitions among asset managers was a major driving force for ESG in recent years, basing their power on the cumulative trillions of USD under their management, and the opinion-shaping prominence of their membership.
Reuters, in Jan 2025, reported on BlackRock’s departure from the Net Zero Asset Managers Initiative (NZAMI), an international coalition of asset managers, committed to supporting the goal of net zero greenhouse gas emissions by 2050, with more than 325 signatories constituting USD 57.5 trillion in AUM. Blackrock cited legal issues related to “inquiries” from public officials but emphasised that the decision did not halt their commitment to considering climate-related risks in their products. To opponents, such associations cruise against the tenets of freedom and healthy competition akin to cartels within capitalism, but proponents insist that these associations provide support to signatories for the implementation of best practices for worthy causes such as achieving net zero greenhouse gas emissions.
Final Thoughts
Popular movements always have an inadvertent competition component. New issues take centre stage and displace older ones, but this does not imply the diminished importance of the latter. AI is one of the topics that has captured public attention in recent years. FActSet for example has documented the concurrent decline in ESG comments and increase in AI comments during earnings conference calls by S&P 500 companies.
The decline in ESG as a terminology is not necessarily a decline in the values that underlie it. In the last twenty years, ESG entered the business scene and rose in prominence to become an emblem of sustainability. But other movements are also on the rise, overtaking its prominence. Seldom is anyone against taking care of the Environment, Social issues, or good Governance; the problem is mainly in deciding the metrics in ESG. This is not uncommon for non-religious movements that have shaped our worldview over the centuries. Popular movements serve awakenings, and their waning does not say enough about the import of the ideals they espoused. In this case of ESG, sustainability will continue to matter, even under different terminologies.
The ESG conversation is far from over. Most of the decline is limited to the US, and the response of the rest of the world will mean a lot. Some still believe that it’s not time for companies to turn their backs, but a moment to prove that ESG efforts are worthwhile. Even in the Davos example, I began with, ESG-related topics remained: long-term strategy for climate, nature and energy, the impacts of climate on health, and transforming energy demand were included. We wait.
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Kestani 
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