As a member of “Gen Z” working in Sustainable Finance or Environmental, Social, Governance (ESG), whenever I respond to questions of “What do you do for a living?” particularly from those of an older generation, I am often met with the immediate charge of “wokeness.” The assumption being that because I work with investors and companies to support the integration of ESG factors within both their investment and business strategy, I am somehow part of a broader attempt to force certain political, almost always left-wing, values upon them.
Truthfully, this “ESG-Wokery” equivalency is nothing more than a pejorative that denigrates a concept that many, none more than me, genuinely believe can be used to support more profitable and resilient businesses. It is best summarised by Heritage Action, a US based activist thinktank, who state that “under the umbrella of ESG activism, corporations […] are weaponizing capital, and promoting nearly every left-wing policy issue they care about.”
Core to their argument is the belief that an investor or company prioritising ESG factors has no intention of improving their financial performance, and will even happily sacrifice financial performance so long as their pre-identified political outcomes have been achieved. Indeed, a maxim I often hear is “go woke, go broke,” and with the United States entering the 2024 election cycle, I fully expect to see these exact arguments regurgitated by the Republican party nominee.
With this in mind, I want to emphasise that for many investors and companies – certainly the ones I work with – their application of ESG rests on the concept of “financial materiality.” For these organisations, an ESG issue is relevant only “if omitting, misstating or obscuring it could reasonably be expected to influence investor decisions,” according to the International Sustainability Standards Board. The concept of materiality is not even exclusive to ESG; it is something that has long been applied within traditional accounting practices. Therefore, examples of “ESG” include: a technology company that holds sensitive personal data enhancing its cybersecurity processes with the intention of avoiding the financial and reputational penalties associated with a cybersecurity incident; a financial institution developing a new product offering focused on traditionally underbanked communities, exposing it to an entirely different customer base and potential source of revenue; a real estate investor renovating existing assets so that they achieve the highest standards of energy efficiency, thereby simultaneously ensuring compliance with ever stricter government regulations around minimum energy efficiency but also capturing increased market demand for more sustainable, environmentally friendly built environments.
ESG can be, and is being, applied with the intention of enhancing risk management and creating financial value, a far cry from what the anti-woke scaremongering would like you to believe. However, by no means am I implying that ESG is perfect or without its own challenges. I would be equally as guilty as those I so strongly criticise for bleating “go woke, go broke,” if I asserted that investors or companies who consider ESG factors magically become immune to failure. The ESG space has its own share of truisms and uncomfortable realities that need to be reconciled. For example, how several of the rare metals identified as being pivotal to the energy transition are being mined, often by underaged minors, in countries with well-documented poor human rights records. Yet, these are the questions the ESG community needs to address, and exactly where their efforts should be spent, rather than constantly pushing back against misinformed, counterproductive accusations of wokeness.
ESG is a far more intriguing topic than the anti-woke crowd give it credit for. The ESG space is still relatively nascent and will inevitably face new questions and challenges as it continues to grow in prominence, as it rightly should. Nevertheless, I am astonished that something authentically being utilised by investors and companies as part of their business strategy, and therefore capable of impacting the world my generation lives through, is being dismissed solely because of a lazy pejorative. ESG is not “woke” nor even needs to be political, and I wish more people would give ESG the consideration it deserves.
