Business and Markets

ESG: Not Woke Capitalism or Greenwashing—but an opportunity for employee voice

June 30, 2022  • Judy Samuelson

In literal terms, ESG stands for environmental, social, and governance approaches to running or investing in companies. In practical terms, it’s a catch-all for issues that have captured the attention of consumers and shareholders but divide us politically, from climate change and human rights to racial equity and geopolitics, to abortion and guns.

As a result, ESG is itself becoming a political issue, with critics on both the right and the left.

From my perspective as director of the Aspen Institute’s Business and Society Program over the last 25 years, ESG is neither woke capitalism nor cynical greenwashing, two charges that have been leveled against it—although there may be evidence of both in the mix. Instead, ESG is an imperfect, ever-evolving effort to assess the risk companies face if they fall short in the race to contain the Earth’s temperature rise and make capitalism work for more people.

For business leaders called to act on hot-button issues, what to prioritize and when to speak up, is complicated. Executives responsible for sorting out demands from various stakeholders are now on the speed dial of the CFO, who, in some companies for the first time, is called to respond to questions that are not just about the financial forecast. CEOs, meanwhile, walk a fine line keeping their companies on task when common concerns divide us, as high-profile infighting involving employees at DisneyNetflix, and Tesla all recently demonstrated.

In spite of the cacophony of voices, including the conservative view that placing conditions on corporations undermines free markets, it looks like ESG investing is here to stay. The US Securities and Exchange Commission is expanding rulemaking to standardize ESG disclosures and protect investors. Investors, in turn, are succeeding at getting the ear of the C-suite, especially on climate change—Engine One’s successful campaign to oust directors at Exxon is one example. A growing number of boards are designing ESG metrics for executive pay.

But given the speed of change, and the reality that the problems business is called upon to address are embedded in the everyday operations, it is neither executives nor investors but rather employees who will end up having the most accurate take on a company’s true ESG performance, and thus will emerge as the most influential voice in this contentious arena.

Who can best hold executives to account on ESG issues?

Be they gigging freelancers or benefitted full-timers, employees are not-so-silent witnesses to myriad decisions about product design, procurement of supplies, protocols on hiring and pay, and management of people and natural resources. Employees understand the customer, the cost of externalities, and whether intentions and execution are linked. They bridge internal and external pressures. They are allies in the long game, and they are not inclined to stay quiet when they witness back-tracking on public commitments and pronouncements on climate, or on human rights, or when the political action committee spends money to ensure access to a politician who is working against bedrock values.

ESG investors bring attention to critically important problems that engage business. But when the system at risk has no “voice”—be it the health of our ecosystem, or our own democracy–trust employees to be that voice. They will not stay quiet—and the return to the enterprise will be measurable.

Judy Samuelson is executive director of the Aspen Institute Business and Society Program, which will be hosting the Aspen ESG Summit July 11-13 at its Aspen Meadows campus in Colorado. She is the author of “The Six New Rules of Business: Creating Real Value in a Changing World.”