Introduction

The paper argues that ESG is both highly important and nothing special. ESG factors significantly affect a company’s long-term financial value, but they are not inherently superior to other intangibles such as management quality, culture, and innovation. Viewing ESG through a long-term value lens positions it as part of mainstream investing rather than a niche category. ESG should not be politicised or put on a pedestal relative to other value drivers.

ESG metrics

Investors and regulators increasingly demand disclosure of ESG metrics, often in common frameworks. While these can aid comparability, the report cautions against excessive focus on standardised measures. Metrics should only be reported if they “drive performance” and are relevant to long-term value. A broader approach would incorporate ESG factors alongside other key performance indicators such as customer loyalty or patent generation. Overemphasis on simple, comparable numbers risks diverting attention from qualitative factors.

ESG-linked pay

Many firms link executive pay to ESG metrics, with 92% of large US and 72% of large UK firms doing so. However, this may lead to narrow focus on measurable dimensions at the expense of broader value creation. Linking pay to long-term value may already incentivise ESG without explicit inclusion. Tying compensation to ESG risks encouraging executives to “hit the target but miss the point.”

The other motive for ESG

Beyond value creation, ESG also addresses externalities. Business imposes environmental costs estimated at USD 4.7 trillion annually (Trucost, 2013), and workplace practices affect inequality and wellbeing. The paper highlights that intangible assets also create spillovers and externalities, both positive and negative. Governments are best placed to regulate externalities through taxes, subsidies, and rules, while investors are suited to monitoring qualitative factors. In cases where ESG is pursued even at the expense of shareholder returns, companies must be transparent and secure shareholder mandates.

ESG funds

Global ESG funds reached USD 17.1 trillion in 2020, representing one in three professionally managed dollars in the US. While some investors expect outperformance, the evidence is mixed. Impact is achieved through divestment (exit) or engagement (voice), but these tools apply to all performance factors, not just ESG. The paper stresses that funds should be accountable for adhering to their mandates but questions why ESG funds face greater scrutiny than non-ESG counterparts that underperform or deviate from strategy.

ESG controversies

Disagreements among ESG rating agencies are explained as differing opinions rather than failures, similar to equity research diversity. Classifications of companies as ESG or non-ESG are seen as overly rigid; factors exist on a continuum and must be considered against valuation. The politicisation of ESG is viewed as counterproductive, with debates too often reduced to ideological battles. The paper calls for evidence-based discussion rather than hyperbole or identity-driven arguments.

Implications for research

Future research should adopt broader, more granular, situational, and nuanced approaches. ESG is diverse, and sweeping questions such as “Does ESG work?” are unproductive. Studies should focus on specific factors, contexts, and potential trade-offs, recognising that more ESG is not always better. Qualitative research and quality-based measures should complement quantitative approaches.

Implications for teaching

Business schools are increasingly assessed on ESG teaching hours. The report cautions that this risks treating ESG as niche and encourages superficial greenwashing in curricula. ESG principles can often be integrated into core finance teaching by focusing on fundamentals such as valuation and risk. ESG electives may better address regulatory and data-specific content, while core teaching should emphasise long-term value creation. ESG should be taught by specialists with relevant expertise to avoid “competence greenwashing.”

Conclusions

ESG is essential as a driver of financial and social value but should not be elevated above other intangibles. It should be approached through the lens of long-term value, with balanced recognition of its benefits, limitations, and trade-offs. Constructive debate and broad consideration of intangibles will better support both corporate performance and societal outcomes.