A lot is said about ESG…and a whole lot more is said about ESG today than even only five years ago. Yet in all the discussions, one thing that is almost never talked about is an actual definition of ESG.
So here it is: ESG is performance data abstracted from the interplay of corporate operations in relation to market dynamics, environmental realities, and reflexive social landscapes.
(I know, not quite pithy enough for click-bait headlines, but trust me, certainly more actionable than what is broadly passing as a definition today.)
This is our definition of ESG and it is born from 15+ years of research and practice in the field and, perhaps most importantly, it is the one that guides our daily research, analytics, and development. I am sharing it here in a brief position statement because I refer to ESG a lot–Motive is an ESG advisory service after all–and I want to be able to ground our discussions in a shared understanding.
The issue is that, rather than address a definition of ESG, the popular press seems content to define it through association. From all the recent discussions, it is clear that many commentators assume that ESG is just a handy short-hand for Impact Investing, Socially Responsible Investing, Sustainable Investing, or Corporate Social Responsibility (CSR) more broadly.
Unfortunately, these commentators have fallen prey to a fallacy of composition. Yes, elements of ESG can be found in Impact, Socially Responsible, or Sustainable Investing as well as in CSR, but that does not mean that ESG is Impact, Socially Responsible, or Sustainable Investing or CSR itself. Just as a car can have rubber tires without being made of rubber itself, the nature of the whole cannot always be inferred by the characteristics of but a sample of its applications.
This distinction is critical. If we embrace the selective stylizations of ESG then we miss out on the strategic value ESG has to offer. If we assume that ESG is about pursuing the UN Sustainable Development Goals simply because one outspoken Impact Investor uses ESG data to that end then we constrain ourselves from ever being able to use ESG data to our own ends and advantages.
Corporate managers and investors, perhaps most importantly, should understand that ESG is performance data relative to your operational landscape. You can engage this data to align with your strategic development objectives; If you want to:
- Optimize market positioning, ESG data can help;
- Identify and mitigate risks, ESG data can help;
- Prepare for, and capitalize on, medium- and long-term opportunities, ESG data can help;
- Harmonize your regulatory and diligence landscape, ESG data can help;
- Engage and mobilize stakeholders, ESG data can help;
- And of course, if you want to pursue a sustainability or impact agenda, ESG data can help.
Do not let the fallacious over-simplifications circulating in the popular press limit your perspective of what ESG can help you achieve. ESG is a universe of data. There is no inherent agenda or moral imperative–what you achieve depends on how you use it.
We define ESG as performance data abstracted from the interplay of corporate operations in relation to market dynamics, environmental realities,and reflexive social landscapes, because we know first-hand the multitude of end-goals such data can be oriented toward achieving. Data can be operationalized and performance can be optimized.