These investors were encouraged to take into consideration the degree to which the companies they invested in were managing their exposure and response to environmental, social, and governance impacts and developments. In this sense, ESG emerged as a form of risk management within institutional investor decision-making processes fitting within their established fiduciary duties toward their beneficiaries³.

Not surprisingly, when the world’s largest investors took an interest in corporate ESG data, and when the incorporation of ESG data in investment decision-making was positively correlated with financial outperformance⁴, an entire ESG industry emerged to provide this data. From rating agencies and investment services providers to consultants and business advisory services, markets became awash in ESG data and an effective arms race to provide ever more, and more accurate, ESG data was launched.

At this point, it is important to note, ESG data was largely agenda-neutral, it was simply data abstracted from the interplay of corporate operations in relation to market dynamics, environmental perspectives, and social landscapes. ESG was a universe of information which could be rendered material according to the ends toward which agents applied the information. For the most part, these ends were largely the optimization of risk-adjusted rate of return⁵. The risk-adjusted rate of return is a measure of an investment’s performance relative to the risk involved in achieving it, noting how a medium, or average, return on a low-risk investment could lead to a higher risk-adjusted rate of return compared to a high return on a high-risk investment, and how ESG data could be helpful in better understanding the risks associated with each investment.

Two developments collided to change the course of ESG development. First, a growing awareness of climate change throughout society and the need for collective action culminated with the ratification of the Paris Agreement in 2015 aiming to limit global warming to well below 2°C, and preferably to 1.5°C, above pre-industrial levels, and resulted in the emergence of the closely associated Net-Zero narrative and agenda. Sustainability was now mainstream and people across all walks of life wanted to buy from, work for, or invest in sustainability-minded companies⁶. Second, the ESG industry, having satisfied the institutional investor demand for data, started looking for new markets to expand into (in true profit maximizing fashion, with a product in hand surely there was someone else they could sell to).

By re-contextualizing ESG data from being agenda-neutral abstractions of corporate performance to measurements of corporate sustainability, a bridge was formed and ESG, previously existing at the margins of financial markets, was made relevant to mainstream consumer and retail investor markets. Once agenda-neutral, ESG was now re-marketed as the flagbearer of sustainability, with the terms now presumed interchangeable by media, regulators, and academics⁷. Driven by the pursuit of market expansion, the ESG industry inadvertently pushed the very concept of ESG to become objective-oriented. Re-packaged and re-branded, ESG was transitioned from a risk management perspective of external developments upon corporate financial performance to an evaluation of corporate performance relative to external objectives. In practice, this meant a shift from “how is the company prepared to manage climate-related financial risks?” to “how is the company addressing its contributions to climate change?”—two seemingly related perspectives whose differences prove remarkably distinct when operationalized.

This convergence of ESG and sustainability, at least in popular understanding and practice was consequential. Concern over global sustainability challenges brought ESG front and center. Legislators drafted increasingly prescriptive regulations, such as the EU Corporate Sustainability Reporting Directive (EU-CSRD) and the closely related Corporate Sustainability Due Diligence Directive (EU-CSDDD) or the California Climate Corporate Data Accountability Act (CA SB-253) and the closely related Climate-Related Financial Risk Act (CA SB261), all with implications reaching far beyond their respective borders. At the same time, record inflows into ESG and Sustainability-branded mutual funds and ETFs⁸ suggested that free market forces may even take the lead in pushing companies toward decarbonization and a broader sustainability transition.

Responding to Perceived Threats

This momentum started to threaten the established power balance, with some concerned that any focus toward sustainability was a deviation from profit maximization. The battle lines were being drawn, but not against sustainability as this is self-evidently a losing proposition but rather against ESG, whose interchangeable yet less emotive name allows more flexibility for mischaracterization. This was not to be framed as a battle against a more resilient future but rather as a stand against increased regulatory burdens, extra-jurisdictional over-reach, and globalist agendas.

Facing a highly charged and politicized arena, the EU sought to delay, simplify, and/or dilute many of the key pieces of legislation which had up until recently been promoted as championing the transition toward a green economy. In a similar trajectory, the Canadian Securities Administrators (CSA, the umbrella organization for Canada’s provincial and territorial securities regulators) also indefinitely paused the development of new mandatory sustainability reporting requirements, leaving the newly finalized Canadian Sustainability Disclosure Standards to be engaged on a voluntary basis only.Additionally, many ETFs which were quick to adopt sustainability-oriented names on the up-swing were just as quick to shed them during this threat of a down-swing⁹. Capping this shift in momentum, the flood of grandiose (yet typically undefined and undetailed) corporate net-zero statements slowed to a trickle^10.

Yet although the race to talk about sustainability slowed, the efforts to measure ESG metrics internally did not. A survey of 400 executives responsible for business and operational decision-making at US-based companies with over $1bn in revenues (representing the supply chains that many SMEs are selling into) found that 87% of executives are either maintaining or increasing investments in business sustainability in 2025¹¹. Among these investments, ESG risk mapping and supply chain sustainability are both identified as meaningful drivers of business value and growth. Yet while these investments are continuing, or increasing, 31% report simultaneously decreasing public promotions about them. Expanding the focus, a survey of 500 executives across 40 countries at companies that have, or expected to, report sustainability metrics under the EU-CSRD legislation, report that 28% found “significant value” from the data and insights collected in preparation for CSRD reporting and over 40% intend to continue with their intended CSRD reporting timeline even as the regulation has recently been diluted and no longer applies to them¹². This is of consequence for many SMEs, including in Atlantic Canada, as larger firms require sustainability data from their suppliers in order to complete their CSRD reporting.

This is the turning point where sustainability as oriented toward external stakeholders is now being re-oriented internally as ESG performance metrics and engaged as meaningful business intelligence. Companies which were pushed to monitor electricity consumption in order to be able to estimate their Scope 2 greenhouse gas emissions as part of their net-zero commitments have learned that monitoring electricity consumption has helped improve efficiencies, reduce costs, and assist in identifying preventative maintenance requirements irrespective of any public disclosures or grandiose net-zero statements. Larger companies enhancing their supplier codes of conduct, sustainability procurement policies, and supplier auditing capabilities in preparing to comply with emergent EU regulations also found that these steps helped rationalize supply chain dynamics and improve resiliency. Companies once pushed to report on employee diversity and inclusion metrics as part of a DEI campaign have found that ensuring unbiased recruitment enhances talent attraction.

The war on ESG, as mis-guided and mis-construed as it was, was more so a war on a selection of self-styled progressive agendas—agendas which had leveraged the early market legitimacy of ESG yet which were not of ESG themselves. From an origin as performance metrics in service to the pursuit of risk-adjusted rates of return onto an alignment with collective aspirations influenced by self-styled progressive agendas and now back to being performance metrics relevant to corporate growth and development, ESG has come full-circle and in so doing has re-shaped sustainability as meaningful business intelligence rather than as marketing and PR campaigns.

Looking Forward

As the popular narrative may be turning away from sustainability, under threat of increased politicization, businesses should be encouraged to push forward with efforts and investments nonetheless. The key is not to be guided by external expectations and perceived pressures but rather by an internal logic. Sustainability is no longer about in-office recycling programs and the occasional Earth Day blog, although these may be important to operational efficiency and public relations, but rather it is about becoming ever more resilient in an increasingly complex and uncertain landscape.

Businesses of all sizes should take the time to determine:

1. How are you exposed to various environmental, social, and political developments over the near-, mid-, and long-terms? Which issues are material to your business development and success as well as that of your suppliers and customers? Remember, material topics may present as risks or opportunities.

2. Through which business functions do the material topics identified in Point #1 potentially impact the company? Broadly applicable business functions may include sales, investor relations, operations, supply chain dynamics, employee relations, as well as others which may be more context-specific to each company undertaking this review.

3. Which indicators across each material topic and associated business function(s) can be monitored to gauge corporate performance over time, and which metrics can assist in evaluation or tracking?

It is through this determination of materiality that ESG metrics bridge external developments and uncertainties to business performance and development, and in so doing help companies become more resilient and sustainable. Identifying and communicating resilience is a novel, albeit critical, objective of business intelligence: if we do not measure it, how can we expect to manage it? If today we are not managing our ability to adapt in a system marked by uncertainty, then what exactly do we expect to be managing one, five, or ten years from now?

ESG emerged at the turn of the century as a generalized framework of performance-related metrics material to institutional investors’ risk-adjusted rates of return. Over a 20+ year development cycle, ESG has been shaped by practice, competing aspirations, and continued research to now being the foundation of sustainability as business intelligence. In this sense, all companies are engaged in ESG, the issue is that not all companies manage their engagement in ESG, and this creates a new competitive frontier—an unexpected benefit of the War on ESG for those who want to seize it.​​​​​​​

​References:

1. This axiom arose from the interplay of Peter Drucker and V.F. Ridway’s perspectives on business management and can be best observed in reading Druker, P. (1954). The Practice of Management, Harper & Brothers: New York and Ridway, V.F. (1956). Dysfunctional consequences of performance measurements. Administrative Science Quarterly, 1(2): 240-247. ​

2. The term was popularized in Hawley, J. and Williams, A. (2000). The emergence of universal owners: some implications of institutional equity ownership. Challenge, 43(4): 43-61.

3. How the consideration of ESG factors aligned with the fiduciary duty of institutional investors was a highly contested topic which began to be settled with the publication of Freshfields Bruckhaus Deringer (2005). A legal framework for the integration of environmental, social and governance issues into institutional investment. Produced for the Asset Management Group of the UNEP Finance Initiative.

4. The correlation between ESG and financial performance is comprehensively explored in the meta-analysis of Whelan, T., Atz, U, Van Holt, T., and Clark C. (2021). ESG and financial performance: uncovering the relationship from 1,000 plus studies published between 2015-2020, NYU Stern Center for Sustainable Business and available at: https://www.stern.nyu.edu/sites/default/files/assets/documents/NYU-RAM_ESG-Paper_2021%20Rev.pdf

5. This application of ESG is evident in Verheyden, T., Eccles, R.G., and Feiner, A. (2016). ESG for all? The impact of ESG screening on return, risk, and diversification. Journal of Applied Corporate Finance, 28(2): 47-55 as well as in practice as seen in the governance guidelines for the Dalhousie University Treasury and Investments committee, available at: https://www.dal.ca/dept/treasury-investments/endowments.html

6. According to the NYU Stren Sustainable Market Share Index, products marketed as sustainable are responsible for 41% of all growth in consumer-packaged goods in the USA from 2013 through to 2024, available at: https://www.stern.nyu.edu/experience-stern/about/departments-centers-initiatives/centers-of-research/center-sustainable-business/research/csb-sustainable-market-share-index. Similarly, PwC’s 2024 Voice of the Consumer Survey, engaging 20,000 consumers across 31 nations find 80% are willing to pay a premium, averaging up to 9.7%, for sustainably sourced or produced goods, available at: https://www.pwc.com/gx/en/news-room/press-releases/2024/pwc-2024-voice-of-consumer-survey.html.

7. The convergence of terms is well developed in Laura Starks’ 2023 Presidential Address to The American Finance Association, in Starks, L. (2023). Presidential address: sustainable finance and ESG issues—value versus values. The Journal of Finance, 78(4): 1837-1872.

8. In 2020, ESG ETFs recorded net inflows of $75 bullion USD, over three times the previous year and accounting for 10% of overall ETF net flows globally. ESG assets under management would continue to grow, reaching $30 trillion USD globally in 2022, with expectations to reach $40 trillion by 2030, available at: https://www.bloomberg.com/company/press/global-esg-assets-predicted-to-hit-40-trillion-by-2030-despite-challenging-environment-forecasts-bloomberg-intelligence/

9. The number of ESG-labeled funds dropped 20% following regulatory developments during this period, available at: https://www.etfstream.com/articles/sustainability-named-funds-drop-20-in-wake-of-esma-guidelines-msci-finds

10 For an example of this, see: https://www.bloomberg.com/features/2025-corporate-climate-broken-promises/ https://www.theguardian.com/business/2025/oct/03/banking-industry-net-zero-alliance-shuts-down-climate-nzba

11. Full survey results are available in the EcoVadis 2025 US Business Sustainability Outlook, available at: https://resources.ecovadis.com/whitepapers/the-2025-us-business-sustainability-landscape-outlook

12. Full survey results available in PwC Global Sustainability Reporting, available at: https://www.pwc.com/gx/en/issues/esg/global-sustainability-reporting-survey.html

This blog is a part of the research summaries for the Green Horizons project. For more information on the project and more, visit www.ponddeshpande.ca/green-horizons.