Idea in Brief

The Problem

Despite heightened attention to environmental, social, and governance (ESG) issues, surprisingly few companies are making meaningful progress in delivering on their commitments.

The Root Cause

Most companies are not integrating ESG factors into internal strategy and operational decisions and are providing investors with little to no explanation of how improvements in ESG performance affect corporate earnings.

The Solution

Identify the ESG issues material to your business. Factor in ESG effects when making strategic, financial, and operational decisions. Collaborate with stakeholders, redesign organizational roles, and communicate with investors about your new approach.

In recent years tremendous progress has been made in standardizing and quantifying measures of companies’ performance on environmental, social, and governance (ESG) criteria. There has also been a surge in investor interest in companies that are rated highly on ESG performance or appear to be taking ESG goals seriously. Yet surprisingly few companies are making meaningful progress in delivering on their ESG commitments. Of the 2,000 global companies tracked by the World Benchmarking Alliance, most have no explicit sustainability goals, and among those that do, very few are on track to meet them. Even companies that are making progress are, in most cases, merely instituting slow and incremental changes without the fundamental strategic and operational shifts necessary to meet the Paris Agreement or the United Nations Sustainable Development Goals.
A version of this article appeared in the September–October 2022 issue of Harvard Business Review.
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