ESG has its issues, but it ought not to be the lynchpin of the sustainability discourse.

It is understandable that given its relative infancy, ESG indices and ratings aren’t perfect, as they account for many factors and involve many stakeholders with often-opposing interests. While the financial sector is poised to have a role in shaping corporate sustainability and responsibility, we must boost ESG literacy so that it can help us overhaul business models. For example, Patagonia is one company that upholds a business model predicated on doing the right thing; more companies need to follow this lead.

ESG ratings aren’t the main driver of sustainable business; they are just part of the puzzle.

But to leverage its potential, ESG must not be treated as a “box-checking exercise” which happens often; indeed, when driven by purpose, bespoke ESG metrics can be transformative and shine a light on the way forward. In other words, businesses themselves need to operate in a purpose-driven way with stakeholder value-creation in mind, rather than tailoring operations to meet a set of ratings or thinking of profit as the primary objective. When purpose and value-creation for all stakeholders are the driving force of a business, it creates an internal culture equipped to do the right thing and find success as a by-product.

To read this guest blog by Prof CB Bhattacharya, click on this link.