It’s the acronym that has taken the business world by storm (and made its way into many Wharton Global High School Investment Competition portfolios — See Box). ESG, which refers to Environmental, Social and Governance factors, is the lens that people use to evaluate companies’ efforts to do more than make a profit – like contribute positively to the planet, practice inclusivity in the boardroom, and support social causes.
ESG considerations are reshaping corporate priorities. ESG fits into the broader landscape of accountable Witold Henisz, vice dean and faculty director of the ESG Initiative at the Wharton School of the University of Pennsylvania, said, “We often hear statistics organized by institutions like the Global Sustainable Investment Alliance that tout $35 trillion or 36% of all globally professionally managed research by Wharton faculty members Luke Taylor and Bob Stambaugh concludes that the actual amount of ESG investing may be more like $2 or $3 trillion. What’s more, a countermovement challenges the efforts to value ESG factors and incorporate them into strategic initiatives, claiming that such efforts are being used to push political goals.
This friction point sparked the August 2023 LinkedIn Live conversation “ESG: Dispatch from the Front Lines of Accountable Capitalism,” organized by Wharton’s ESG Initiative and Wharton Executive Education.
Dr. Henisz moderated a virtual panel discussion with three leaders in ESG integration – across HERE.
ESG Experts Express Policies and Purpose
Below are highlights from the panel of ESG leaders, as they pull from their professional experiences to suggest how companies, investors and policymakers can support the future strength of ESG.
How can we accelerate progress toward accountable capitalism? “We have to reshape our economy in so many ways. And we have to choose to put aside a bit of the noise, because there isn’t much space for that when data and everything is telling us the right direction,” said Viviana Alvarez, former head of Engine No. 1 is all about active ownership of the companies in which it invests. “I think we can be very disciplined, whether you’re an investor like we are, and we’re investing on behalf of others, how a company behaves. Tesla is a great example. They have built a beautiful engineering process that takes us down the [positive environmental impact] road very quickly and creates Arthur van Benthem, faculty co-director of the Wharton Climate Center. “I would say that climate-risk really interesting research by my colleagues here at Wharton who studied the housing market in Florida. They show that houses that are in high flood risk areas transacted 19% less and sold for 5% less than very similar houses in low flood risk areas…Good strategists and leaders need to understand why and how financial markets respond and how to be prepared for that.”
When it comes to the sustainability of the ESG movement, Dr. Henisz summarized the panelists’ insights like this: “We need to experiment. We need to embed ESG into the core. We need more system-level thinking. We need people who have a sense of purpose that are willing to drive this experimentation and integration. And we all need to understand the role that externalities (side effects or consequences of commercial activities) play in this broader system that companies are embedded in.”
Grancio of Engine No. 1 echoed that ESG can’t be something we do on the side: “We need to assume that the E and S and G is data and material and push it into the core of how people think about things.”