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Beyond the ESG hype cycle: Adopting an 'activist mindset' to doing business 

ESG investing is past it's peak hype — but that doesn't mean the business community is finished with it.

ESG investing is past it's peak hype — but that doesn't mean the business community is finished with it. Image: Getty Images/iStockphoto

Jon Miller
Founder, Open For Business and Partner, Brunswick Group
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  • ESG investing is going through a tough patch, attracting criticism from many sides.
  • But this isn't ESG's death knell — in fact, we're just at a different stage of the ESG hype cycle.
  • The fundamental societal drivers of ESG are still firmly in place, and businesses are not abandoning it.

Environmental, social and governance (ESG) investing has been having a rough time lately. When BlackRock boss Larry Fink said he will no longer use the term “because it’s been entirely weaponized by the far left and weaponized by the far right," many took this as a sign that investors had moved on, that ESG was just a fad after all.

On the contrary, the fundamental drivers of ESG are stronger than ever. Now is the moment to reset, move beyond the hype-backlash cycle, and to re-focus on the real opportunities of ESG and the threats it helps us avert.

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Fundamental drivers of ESG growth are stronger than ever

Although the phrase ESG may never again cross Larry Fink’s lips, he stressed that BlackRock hasn’t changed its stance on the underlying ESG issues. This shouldn’t be a surprise: The fundamental drivers of ESG growth are intensifying.

For over a decade at Brunswick Group, I have been working with business leaders on their toughest societal challenges. ESG issues show up in the boardroom in a variety of ways.

The issues at the heart of ESG are key to business resilience. Many of the top risks facing businesses are ESG issues, according to the World Economic Forum's Global Risks Report 2023. For example, climate change, biodiversity loss, cost of living and social cohesion.

Gen Zs and Millennials are critical to many businesses as consumers, as employees and, increasingly, as investors. Studies show they often make decisions based on the social impact of the company.

Corporate leaders face growing regulatory pressure as governments are pushed to take action on ESG issues. McKinsey research estimated that typically one-third of corporate profits are at risk from state intervention — but that leaning in to ESG can help to avert harmful regulation.

The current ESG backlash recalls the “hype cycle” developed by Gartner Group during the dotcom boom and bust. We are undoubtedly past peak hype on ESG, where expectations exceeded reality. We may now be in a period of general disillusionment. But the reality is that ESG growth is continuing. As the hype falls away, the field will mature.

The “hype cycle” of ESG Brunswick Group
The “hype cycle” of ESG. Image: Brunswick Group

A new equation for corporate leadership on ESG

As companies move to adopt ESG, their approached tend to mature in three stages.

First, there’s what we think of as Baseline ESG, which is where companies first begin to grapple with this new demand from investors. It’s the start of the journey. It involves an assessment of the material risks associated with societal issues, and a commitment to metrics, targets and transparency on key societal issues.

Second, companies move to Strategic ESG, becoming more proactive. They set a roadmap including the capital expenditure and investment involved in stepping up to ESG issues and the returns for doing so. They focus on innovation of products and practices, and long-term supply-chain resilience. They build ESG issues into their corporate strategies.

Third, a new dimension has emerged that we call Impact ESG. This moves beyond measuring business performance on ESG issues, looking at how they impact the issues themselves. It works both ways — double materiality, in the jargon.

Dimensions of corporate leadership on ESG.
Dimensions of corporate leadership on ESG. Image: Brunswick Group

A lot of people have invested a lot of hope in ESG. It promises the ultimate win-win of value to society and value to shareholders. However, there are also those who fear that ESG may be a “dangerous placebo” that gives the appearance of substantial action while nothing much changes in the world. That’s why this new equation for ESG matters: ultimately, businesses can’t function in societies and systems that are broken.

An “activist mindset” to doing business

ESG will continue to grow not just because the world needs it, but because business needs it. Corporate leadership on ESG comes from moving beyond a narrow engagement with issues – away from a compliance approach, focused on checking the boxes rather than fixing the problems themselves. It means not just asking, for example, how your organization is performing on a given issue, but instead going further to examine how it can help to tackle issues in the world.

Doing this requires a new mindset. First, you need to turn and face the challenges, seeing the issues as the world sees them, not just through the lens of your company’s interests. Then, you need a clear point of view on what needs to happen, and how your business can be part of that. And you need to take action — with imagination and practicality, and with an ambition to make a real difference. This is the “activist mindset.”

This is a significant journey to start on. It isn’t easy, but it’s doable. Many leaders in business are doing it. And, once you get going, we’ve seen how it unlocks energy and innovation in the business and how it can animate and elevate your leadership.

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