As we look ahead to 2023, the performance of corporations is caught in the crosshairs of investors, politicians, advocates and employees. Surveys show broad acceptance of environmental and social metrics, yet the confusion over the aims and merits of Environmental, Social and Governance (ESG) analysis grows. To bring the year to a close, we asked a selection of executives, journalists and scholars for their predictions about the path ahead. Are there developments on the horizon that could strengthen—or undermine—the attention paid to environmental and social performance?
Please note that these predictions represent the authors’ views, and not necessarily those of their institutions.
1. For ESG strategists, there’s no turning back
We can clarify what ESG means, but we shouldn’t confuse semantics with the real stakes for business and society. Most Americans won’t focus on a three-letter investment acronym. But keen observers of business—especially employees themselves—are watching for signals that executives and boards are able to deliver on the social contract. ESG strategists understand the need for authentic commitments on issues the public and employees care about and that matter for the long-term health of the business: good jobs, economic mobility, and climate, among them. ESG will command headlines as we move into another election cycle, but there is no turning back.
—Judy Samuelson, Executive Director, Aspen Institute Business & Society Program
2. Boards will be fighting an anti-ESG war on two fronts
“Florida… is where woke… goes… to die!” said Governor Ron DeSantis on election night. Look for DeSantis, state attorneys general, and other candidates with their eyes on 2024 to interchange “woke” with “ESG” as they make ESG part of the culture wars. Meanwhile, skeptics of ESG in the investment community will continue to evaluate ESG investing solely based on past financial performance, with the harshest critics attacking it as leaving neither investors nor the planet better off. Boards will need to understand “anti-ESG” as a war being fought on two fronts by attackers with very different endgames.
—Doug Chia, President, Soundboard Governance
3. Growing controversy will only drive more interest in ESG
The political posturing around sustainability will continue, and concern over both the integrity of ESG and returns will earn headlines. Changes in regulations will overwhelm or underwhelm depending on what camp you sit in. All this is good for ESG. Why? It’s about growing ESG literacy—the noise and even the need to work through misinformation help build the understanding by both clients and practitioners of the use-case for the investor.
—Jake Walko, Managing Director, ESG Investing & Global Investment Stewardship, Thornburg Investment Management
4. Sustainability and employee engagement will intersect
Employees will look at sustainability as a part of the company’s value proposition—and organizations will respond by placing even more focus on educating and developing their workforce on key issues and business priorities related to sustainability.
—Laura Cococcia, Head of HR Strategy and Program Management, GE
5. Geopolitics will strengthen the case for ESG as prudent investment strategy
“De-globalization” is underway; one reason is the drive towards ESG investing. As we begin to price in the cost of fuel, carbon emissions, and the reputational risk of operating in countries with low environmental or labor standards, we see that “cheap” products may not really be so cheap. The search for resilience in business and politics—not merely “efficiency”—delivers a big, geopolitical tailwind to the ESG movement.
—Rana Foroohar, Global Business Columnist and an Associate Editor at the Financial Times and author of the book “Homecoming: The Path to Prosperity in a Post-Global World.”
6. Better disclosures about human capital will demystify the ‘S’ in ESG
The SEC could choose to respond to demands for US firms to disclose more information about employees, such as workforce compensation and worker turnover for full time, part time and contingent workers. Barely 15 percent of US companies report on these costs today. Analysts focused on fundamentals will be able to better understand the company’s cost structure and the gains shared between capital providers and labor.
—Shivaram Rajgopal, Roy Bernard Kester and T.W. Byrnes Professor of Accounting and Auditing, Columbia Business School
7. Common sense will pull the ESG debate back from the extremes
Practitioners of sustainable investing are accustomed to the critique of “too much” or “not enough”—both overly ambitious and woefully deficient. The space in-between is full of opportunity. ESG data will improve, ESG regulation will escalate, and ESG commentary will persist, but the awesomeness of the actual world will continue to outshine them all.
In 2023, we will re-root ourselves in the solid ground of common sense. Sustainability issues are increasingly relevant for the health of our investments, our organizations, our families, and our communities. Together we can demonstrate that the best opportunities lie not at the extremes of ESG rhetoric, but at the heart of sustainability substance.
—Katherine Collins, Head of Sustainable Investing, Putnam Investments
8. The call for a just transition will drive innovation in policy and technology
The changes playing out in business and capital markets come with a condition: that no one is left behind. The need will become more evident as governments and countries develop plans that prioritize vulnerable populations.
And as ESG becomes the “license to operate” for companies, the pressure from different stakeholders will transform into regulation. The demands for enhanced reporting and greater transparency are apparent. New technologies and innovations will be needed to meet new standards, and the call for greater efficiency and transparency.
—Justina Nixon, Vice President, Corporate Social Responsibility and ESG, IBM
9. Corporate commitment to ESG will be tested as the economy cools
The rise of ESG commitments and strategies have largely matured during a time of growing economic prosperity. As the economy cools, companies will be forced to make even harder choices on whether to invest in the ESG strategies that ensure the long-term health of business and society, or whether to return to the playbook of late-stage capitalism and prioritize short-term profits and shareholder returns. 2023 will lift up the companies that are—and have been—committed to building truly sustainable businesses.
—Danielle Holly, Associate Director of Leadership Programs, Aspen Institute Business & Society Program
10. Taking a long view reveals the need for talent, not headcount reductions
I’m disappointed by how quickly managers are deploying workforce reductions in the face of economic uncertainty—given the remarkable opportunity that exists to green the economy and transform industries to sustainability. The long-term view will build position and lead transformation, rather than retreat on talent or ambition. This is the moment for business to harness imagination and drive towards sustainable business models, products, and services. It requires talent beyond what is needed for business as usual. Strong leaders will challenge the business to imaginatively redeploy the workforce toward these ends for future economic vitality and talent well-being.
—Dave Young, BCG, Managing Director and Senior Partner, BCG Henderson Institute Fellow
11. Ecosystems will be the new anchor of ESG discourse
In 2023, we will likely see more companies that decouple growth and impact—in other words, enable growth without a negative impact on the environment. I anticipate more businesses and industries with an outsized reliance on a thriving ecosystem to lead the way on restoring the planet. The public debate on ESG investments and offerings invites us to reflect on what is possible now. If we peel apart the acronym and focus on what matters, like thriving farmlands and communities and doing business the right way, it will hopefully reveal ways to coalesce and work together.
—Jon Banner, Executive Vice President and Global Chief Impact Officer, McDonald’s Corporation
12. Improved disclosures will bring clarity for investors
Federal and state regulators, as well as investors, will seek greater transparency on how funds and advisers consider ESG factors. “ESG integration”—the consideration of financially material ESG factors in the investment process—can be distinguished from “sustainable” funds or “impact” funds, in which ESG outcomes are not solely correlated with risk and return. We are optimistic that under expected new rules, investors will have greater transparency and consistency in disclosure as regards the application of ESG-related considerations, leading to better informed investment decisions.
—Caitlin McSherry, Director of Investment Stewardship, Neuberger Berman
13. We’ll have enough of litigating and re-litigating ESG
New fronts continue to open in the U.S. battlefield over the merit of ESG measures in business, investment and policy decisions. First, it was social media and traditional media. Then came the halls and corridors of state and federal government. Next may be the courts, which means that the ESG job most in demand in 2023 might be…lawyer?
ESG first came under fire because it could not perform (it more or less did), then for prioritizing risk management instead of positive social change. Today, politicians question motives and a liberal bias for social goals over returns. Tomorrow will it be that the lawyers are making too much hay? That might be mutually agreeable.
—Chris McKnett, Co-head of Sustainable Investing, Allspring Global Investments
14. Diversity, Equity and Inclusion will put ESG leaders on a stronger foundation
In 2023, DEI will migrate from a function of HR to a foundation of ESG. It will be legitimized as a business imperative across functions, and ESG will be strengthened by bringing an inclusive and more equitable lens to the commitments we make. Business leaders will be challenged to understand how business practices impact marginalized communities around the world. The shift will enable better relations with critical stakeholders and reveal the potential for shared outcomes.
—Kim Vu, VP of Environment Social Governance, Remitly
15. The need for collaboration and recognizing progress, even when it seems too slow, will remain
The world can be unpredictable, and as the last several years have revealed, the expected path can change quickly in the face of challenges like the pandemic and an uncertain economic environment. Decarbonization is a major challenge, especially for a business of the size and scope of Amazon. As companies make progress on goals, we need to celebrate breakthroughs and progress, along with the need to move at a faster pace. In 2023, we’ll see further collaboration—to share learnings, apply best-practices, and create meaningful impact together.
—Tessie Petion, Head of ESG Engagement, Amazon
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