I came across a highly interesting recent think-piece written by Colin Mayer, entitled ESG is Dead, Be True and Fair Instead

Here are some extracts:

• ESG is dead. It failed because it didn’t serve a purpose. It was both insignificant and unworkable. In its extrinsic, single materiality form, as promoted by IFRS, it was no more than another investment risk factor. In its intrinsic, double materiality form, as advocated by the EU, it was another cost centre and form of regulation. It was neither designed to save the world nor promote growth, investment and prosperity. It should not therefore be missed.   
• But do not take this as a sign that all is well without it. All is not well and will not be. It is manifestly getting worse. “Crises are increasing in frequency and growing in intensity. Their frequency and intensity will continue to increase until we solve the problem” (Colin Mayer (2024)). The problem is that there has been too much emphasis on risk, regulation and costs, and not enough on value creation and profit, and the commercial opportunity that comes from solving problems.
• Profit is the fuel that lies at the heart of capitalism and the incentive that drives business. Profit comes from the Latin proficere and profectus, to advance and progress. That is precisely from where a profit should come, from advancement and progress. But too often it is also associated with disadvantage and regress.
• As currently measured, a profit is simply the difference between the revenue of a business and its input costs – its labour, material and capital costs. However, that does not account for the costs of paying its employees below a living wage, suppliers below a fair-trade price, or the pollution, biodiversity loss and global warming a company causes. In other words, it does not account for avoiding or cleaning up the mess that a company creates.
• A company’s measured costs are not therefore its true costs, and its measured profits are not its fair profits. Indeed, whenever the directors of a company sign off their accounts as being “true and fair”, they are doing no such thing. They are neither true nor fair. They are not true because they do not reflect their true costs, and they are not fair because they are therefore not reporting a fair profit. 

In part, that points toward the limitations of current accounting and reporting standards, for example in not recognizing certain categories of intangible assets and related costs. Mayer doesn’t dwell on that aspect though, noting succinctly that “Corporate auditing, reporting and governance standards should establish that companies accounts and reports are true and fair,” His real purpose is to forge a broader vision, of a new paradigm in which “the ‘success’ and ‘interests’ of the corporation derive from profiting without harm, in other words from value creation not value diversion or transfer from others”:

• By aligning shareholders with other stakeholders’ interests, all parties, including governments, are encouraged to innovate and invest. Trust is created where mistrust prevails, and stakeholders are confident about investing in companies where at present they fear being exploited and expropriated. In particular, the interests of government in social wellbeing are aligned with those of business in profits without harm. 
• As a result, firms are assisted by their stakeholders and governments in internalizing and capitalizing benefits conferred on others that currently remain external and unrewarded.  Mutually reinforcing interests promote partnerships between businesses, investors, governments, customers, employees, suppliers and communities in committing to a common purpose of shared prosperity.

The “ESG is dead” component of the title is perhaps unhelpful then, seeming to portend a narrower article than Mayer actually delivers. It’s surely an idealistic vision, at least in a world increasingly driven by zero-sum philosophies (in the Trumpian view of things, the US is being screwed over by just about everyone else, who must therefore be punished and burdened, with companies left to navigate what remains as best they can). In a low-wage, high-cost economy largely motivated by aversion to tax and regulation, in which accumulated financial, social and environmental debt reduces the room for maneuver, and the equal provision of basics like housing and health care seems to be beyond the capacities of most governments, it’s far from clear that most companies, however good their intentions, can ever succeed in (to take one of Mayer’s examples) paying all of their employees a living wage. Such suggestions as “Corporate law should determine that corporate success derives from profit without harm (and) Banking and securities laws should ensure investors and investment institutions do not profit unfairly at the expense of others” seem extravagantly unworkable in the world we inhabit. And has there ever been a form of “advancement and progress,” that didn’t confer “disadvantage and regress” on someone, at least in the short term? Isn’t there something odd about so summarily writing off the efforts invested in ESG as wrong-headed, while simultaneously asserting we can collectively hope to succeed at something that sounds much, much harder and more disruptive…?

The opinions expressed are solely those of the author.