The increasing skepticism about the effectiveness of Environmental, Social, and Governance (ESG) frameworks in determining sound investments has led to calls for more specific and measurable sustainability measures that can be reported and verified. It reflects a growing realization among executives and investors alike: integrating a sustainability strategy into your business is not merely an ethical or compliance exercise but a deliberate choice anchored in long-term value creation.
As sustainability becomes more closely intertwined with risk mitigation and value creation, finance departments are taking more ownership of (or at least actively participating in) sustainability tracking and planning. This shift, coupled with emerging regulations that mandate the disclosure of sustainability information alongside financial data in regulated filings, such as the recent SEC rule, has accelerated the integration of climate and corporate growth strategies.
The convergence reflects what’s known as integrated reporting, where sustainability data—now rightly considered financially material to investors—is mandated by law to be disclosed in regulated financial statements. Sustainability reporting is now baked into the core disciplines of finance and Enterprise Risk Management (ERM), putting financial reporting and sustainability reporting on the same plane. This new level of market-driven transparency reflects the next phase in evolving stakeholder expectations for corporate sustainability.
Sustainability and financial resilience have become one and the same
The approach to ESG data and management has evolved. What was once characterized by nominal commitments is now driven by transparent, tangible impact and financially beneficial progress toward net-zero goals. Decarbonization initiatives are both environmentally beneficial and advantageous for businesses. By incorporating sustainable practices into business operations, companies can realize the benefits of reduced utility costs, increased sales, and improved risk management, to name a few.
As a Chief Sustainability Officer, I see this not merely as a shift in reporting standards and practices but as a fundamental change in how we view and value sustainability within the corporate structure. It’s an elevation of sustainability from a niche concern and previously siloed discipline to a central pillar of strategic decision-making that directly influences the financial and operational health of businesses. The emerging regulatory requirements, driven by market pressure, help businesses, investors, and stakeholders better understand the climate and environmental risks that companies face.
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How ESG skepticism and ridicule paid off in the end
Over the years, investment professionals have become increasingly skeptical of ESG metrics because of their qualitative nature and the lack of harmonization across standards. Wariness around the comparability and compatibility of ESG metrics and methodologies employed by raters and rankers has underscored the need for quantitative, data-driven approaches to emissions measurement and sustainability reporting.
Done correctly, carbon accounting and ESG reporting deliver the kind of transparency and reliability that numbers-driven investors require.
In recent years, investors and other stakeholders have also shown a preference for businesses to focus on direct climate impacts over broad, vague criteria.
Larry Fink, CEO of BlackRock, provided the highest-profile example of this trend. Fink first highlighted that “climate risk is investment risk” in his letter to CEOs in 2020. This sparked a wider debate about the role of investment in fostering a sustainable future. In March 2024, Fink publicly abandoned the term “ESG” in favor of “transition investing” dedicated to supporting the clean energy transition. This narrower, more resilient investment strategy highlights the reality that failing to make progress toward the energy transition traps us in an expensive, inequitable, and unsustainable system with profound societal repercussions.
Even more recently, while catering to a more conservative audience, Fink’s commentary on “energy pragmatism” acknowledges that the transition toward renewable energy and decarbonization demands a balanced approach that strives for long-term sustainability while acknowledging current limitations.
In other words, while the label of ESG might fall out of favor, the core principles of sustainability and financial resilience remain prominent and demand robust decarbonization, climate change strategy, and execution toward net-zero goals.
Progress toward net-zero emissions means everyone wins
Today, integrating sustainable practices into business operations must extend beyond the scope of traditional ESG strategies to appeal to a broad range of stakeholders and make financial sense for businesses. Regardless of what terminology investors and politicians favor, the movement toward sustainable business operations and the transparent disclosure of these efforts isn’t a trend—it’s here to stay. From the European Union’s CSRD to California’s new laws and the SEC, the directive is clear: the future of business hinges on enhanced reporting and transparency.
In today’s age of energy renaissance and carbon emissions disclosures, embracing climate transparency is not only a regulatory necessity but a strategic move. The shift from ESG as a concept to sustainability as a practice reflects a deeper understanding of the economic, environmental, and social imperatives of our time. As time passes, regulations will continue to tighten, and climate impacts will intensify, making sustainable practices and reporting indispensable business strategies. The transition demands leadership that goes beyond compliance—it’s a call for companies to forge a path toward a more sustainable and profitable future.
Sources
1. BlackRock, “Larry Fink’s 2020 Letter to CEOs: A Fundamental Reshaping of Finance,” https://www.blackrock.com/us/individual/larry-fink-ceo-letter
2. The Wall Street Journal, “Step Aside, ESG. BlackRock Is Doing ‘Transition Investing’ Now.” https://www.wsj.com/finance/investing/step-aside-esg-blackrock-is-doing-transition-investing-now-59df3908
3. Axios, “BlackRock's Fink shows the realpolitik of the energy transition,” https://www.axios.com/2024/03/27/blackrock-annual-letter-larry-fink-energy
