ESG is dead. Long live ESG

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The writer is acting CEO of the University of Cambridge’s Institute for Sustainability Leadership. CISL Fellow Paul Gilding also contributed

The business case for sustainability is clear: companies cannot thrive on a planet suffering from cascading crises and unmanageable risks. Yet despite decades of corporate commitments, businesses continue to harm the planet, carbon emissions rise and fossil fuel companies chase growth. The environmental, social and governance agenda has not delivered and, in its current form, never will. We urgently need a change in mindset and a fundamental redesign of the markets that frame business decisions.

The sustainability actions of leading companies demonstrate what is possible and generate momentum. They set ambitious net zero goals, reduce carbon emissions, collaborate to make supply chains fairer and more sustainable, and transparently report on their progress. However, there is a risk that the wider ESG or corporate sustainability sector contributes to our collective inadequate progress by giving the impression that we are doing well. This reduces the impetus for structural change.

It’s time to face the uncomfortable truth: ESG as it stands, based on voluntary market disclosures and actions, will not bring about the necessary change. The solution is a radical shift to “competitive sustainability” – a concept I recently set out in a paper co-authored with environmental and sustainability advisor Paul Gilding.

The underlying problem is not the intent, but the execution. ESG has largely been an additional layer on top of traditional business models to manage risk and improve reputation. But this fails to address the fundamental tension between profitability and sustainability. As long as the market rewards short-term gains over long-term resilience, businesses will hurt the planet and markets will destroy the foundations they depend on.

We do not have enough time to rebuild institutions and economic systems before the global ecosystem goes into chaos. Instead, we need to harness the market’s potential to bring about change quickly and at scale by redesigning business incentives and penalties. This will require a critical mass of businesses clamoring for government action – and a shift in corporate mindsets to see sustainability as a matter of competitiveness, not responsibility. We need proactive business support for a redesign of markets.

Businesses must recognize that the imperative for action on environmental issues is not one of morality or consumer sentiment, but the laws of nature. Climate change and biodiversity loss are not abstract threats, but real and measurable factors that will undermine business as usual. Instead of asking “How much sustainability can we afford?” companies must ask “How do we accelerate, navigate and benefit from the transition?”

Some companies get it right – for example the Swedish steel, mining and utilities companies that formed the Hybrit initiative – working to reinvent their industry with solutions like fossil-free steel. They’re not just preparing for a fossil-free future, they’re shaping it and positioning themselves to win. But others clung to inadequate measures. For example, many in the plastics sector have defended recycling claims and focused on using recycled content. What they should do is build the critical mass needed to support policies and actions that boost waste collection, reduce material use, and increase reuse and recycling.

Just changing the mindset is not enough. The market needs to be redesigned to remove the tension between profitability and sustainability. We need thriving markets for climate-neutral, nature-positive and circular products. Governments must create conditions that make it economically compelling to phase out harmful activities. Otherwise, businesses that make the voluntary transition will be undercut by those that don’t. Businesses need to send the message that swift action on sustainability will benefit economies, jobs, safety and health.

Leading businesses are already calling for these changes, including members of our institute’s corporate leadership groups. But a few progressive voices are not enough. Legislation is systematically moderated by lobbying from traditional agents – think of the German car industry’s defense of the internal combustion engine, or agriculture’s resistance to limits on chemical use or targets for reducing greenhouse gases.

ESG as we know it is over. In the next decade, businesses must compete not just for market share, but for the future. The rewards will be significant: long-term resilience, market leadership, and the ability to succeed in a world that has the necessary social and environmental foundations.