The fundamental problem with ESG? Conflicting letters

The term ESG – short for environmental, social, and governance – is routinely used to capture organizations’ efforts to be more climate friendly and socially inclusive and to employ sound governance practices and processes. Although ESG criteria are well-meaning, the term lumps together concepts that are profoundly different on at least three dimensions: (1) the excludability of the benefits of an action, (2) the temporal gap between investment and the realization of its returns, and (3) the uncertainty surrounding any given action’s outcome. In addition to these differences, E frequently goes head-to-head with S (both within and across countries). We propose a path forward, on the way investigating the solutions that businesses can explore in order to build a more sustainable future.