Is ESG extremely important or nothing special?
Although it affects companies' long-term value and impact on society as a whole, ESG is often put under the spotlight no matter what other intangible assets may be material for both stakeholders and shareholders.
In his paper « The end of ESG », Alex Edmans takes a nuanced view on sustainability and value creation topics to better define what ESG should and should not be:
- Being a great company takes more than just being great as ESG, all material intangible assets should be praised the same to give a more balanced view of a company's performance.
- Greenwashing is not the only way stakeholders can be deceived: companies should be held accountable the same way for failing to walk the talk on any promise made to their clients.
- ESG should not be integrated differently than other drivers of value into companies' strategies and processes, for instance by requesting specific ESG reports and linking executive pay to extra-financial targets.
- ESG assessments are inherently subjective and should not be politicised. Disagreements on what factors will be relevant to building a strategy's long-term value are legitimate.
Weaving extra-financial targets into companies' businesses is critical to balance shareholder value creation and impact, but it should not lead us to overlook other intangibles.