Acronyms often serve to mystify and blur simple concepts. An acronym assumes a level of expertise or familiarity, without which, it easily shrouds in smoke and creates confusion and misunderstanding of simple concepts.

ESG is the acronym for Environmental, Social, and Governance. The increasingly popular use of this acronym fails, on its own, to uncover the very purpose and nature of the three words it represents when strung together. This is a meagre attempt to demystify ESG and blow away some of the smoke.

ESG is best understood as a fundamental natural justice concept rather than an exercise in compliance.

A Google search of ‘ESG’ retrieves a trove of information on how to maximise a company’s ESG score through compliance which quickly becomes mired in specialist information about funding, private equity, marketing, and climate related economics. It seems that the increasingly popular acronym is evolving into an equally popular hashtag easily attached to any information that sounds like any aspect of the acronym. This has created the blurring misconception that ESG is environmental compliance, social compliance, and check-box corporate governance. Rather, it is submitted, that ESG ought to be understood through a lens of environmental consciousness, social impact and consequence, and clean corporate governance. This understanding of ESG as a concept, reveals that ESG demands that we navigate its complexities and become actors in its development from the demands of societal justice to positive law. Consequently, ESG is not a protocol with a list of mandatory exercises that eventually generates a certificate of completion. Realistically, a concept this complex cannot run in sequence, and instead demands constant and critical human engagement.

Society has sensed an absence of justice. Globally, society has an awareness of a current legal system that fails to deliver such justice. The process has commenced that begins to develop social mores that seeks to bridge the gap between what the law is and what the law ought to be. Social mores, as driven by human behaviour, is more likely to achieve a sense of justice than that of an often parochial and lethargic legal system. There are increasing demands and pressures for greater accountability from corporations. The consequence of corporate behaviours, guided by contemporary capitalism, has resulted in a deep sense of injustice on the part of society and its consciousness. There is an increasingly louder cry for a change in behaviours in those areas that immediately impact society. A spreading realisation is that the culture of the corporate is a fundamental barrier to the realisation of justice.

The evolution of social mores and societies’ increasing demand for fairness and equity is well recognised and captured by the corporation in other concepts such as corporate social responsibility. Companies continue to make investments and look to maximise their investments which in turn creates a machinery of demand for ever increasing profits. These clamouring demands for increased profitability bears the promise of the same consequences as that which have created the devastation of the past, and it is certainly why every species is squarely in the middle of a climate crisis that has manifested itself in challenges of food shortages, human displacement, and biodiversity loss. Any hope for a manifestation of justice needs to be able to speak the language of the corporation and, by contrast, for corporations to continue satisfying demands for profitability, they need to adapt to new social mores. This polemic is what delivers ESG as a concept. Understanding that ESG has the ability to provide a compact of modalities that manifests a sense of justice driven by human engagement on the one hand, and the corporation’s response to the increasing risk of lower profitability on the other.

An increased risk of lower profitability is a key driver to the success of any ESG framework. It is not, yet, an increased profitability nor is it a genuine pursuit of justice that drives corporate leaders to be the quickest or first to the draw, it is instead the fear of losing profits from consumers and investors who would rather invest and support those businesses that embody environmental consciousness, social impact and clean corporate governance. The S&P 500 ESG index was created to help investors make qualified decisions based on a company’s commitment to ESG. The S&P 500 ESG Index has 308 constituents. It demonstrates a company’s ESG score by measuring the stock value of some of the largest corporations which meet certain elements of a sustainability criteria. The S&P ESG Index, through its engagement of a company’s behaviours in relation to its environment, its social landscape, and its corporate governance, unites all three aspects of the acronym to inform a score that speaks to the multi-disciplinary approach of a company to ESG. A company with a hugely positive and environmentally conscious vision that is producing lithium batteries that seep into townships in Africa causing mass community devastation should struggle to find itself on any ESG index, the point being exactly that environment, social and governance are not mutually exclusive to achieving the fundamental goals of ESG.

Elon Musk, the Tesla and SpaceX moghul, dubbed ESG as yet another phony leftist agenda for social justice warriors after Tesla was removed from the S&P ESG Index. He criticised the index on the basis that it now included six major oil companies but failed to adequately recognise and score the efforts of Tesla in its unique and environmentally conscious approach to motorised vehicles. He took to Twitter to share a meme which attracted thousands of interactions, and to no surprise, many share his view of ESG.

The failure to understand that ESG can serve to transform the corporation will lead to common misconceptions such as that demonstrated in Musk’s meme. The addition of six oil companies for their variations and adaptations to new pressures in respect of ESG and corporate social responsibility will rank higher than that of Tesla who, despite having an outstanding environmental goal, has faced tremendous backlash and complaints for racial discrimination and poor working conditions. Again, a company’s inability to employ a framework that is dynamic and transformative in respect of environmental, social and governance, independently and collectively, will fail as being truly ESG focused and purposed.

With overwhelming instances of greenwashing, the overnight emergence of ESG expertise in every industry, and the crude selling of ESG without understanding; the methods of measurement, the standards of qualification, and the achievement of realistic outcomes has been subjected to significant criticism and perhaps rightly so. ESG, as an acronym, has become a flash word in an attempt to lower the risk of becoming disenfranchised and to increase buy-in from investors on the basis of the fear of that same disenfranchisement. Much of what can be achieved as a compact of modalities in the manifestation of justice is lost in the craze that is the ESG acronym.

ESG, as a concept, that roots itself in deep scientific knowledge, substantive traditional knowledge and leadership, and the Rule of Law as applied in an affected society will result in a compact of modalities that is likely to manifest and deliver justice. It can achieve this only by being a human driven and influenced modality. It will achieve this goal by seeking accountability of the corporation through social license, and in return corporations will be incentivised through not only mitigating the risk of lower profitability but rather through improved and sustainable profitability.

Authored by Khatija Kapdi, a member of the Dentons Global ESG Campaign.