The End of ESG

ESG (Environmental, Social, and Governance) is a framework for evaluating how companies manage sustainability, ethics, and long-term risks. Its goal is to reduce environmental harm, promote fair social practices, and ensure responsible governance—ultimately helping to identify companies positioned for long-term success with better risk-adjusted returns.

In Europe, ESG enjoys strong political and institutional support, despite some criticism of its complexity and cost. In the United States, however, ESG has become highly politicized. While Democrats generally support ESG initiatives, many Republicans, particularly in conservative states, oppose them, labeling ESG investing as “woke capitalism” and seeking to limit its use in public funds.

Against this polarized backdrop, Alex Edmans, a finance professor at the London Business School, published a provocative article in 2023 titled “The End of ESG.” The title was surprising—especially coming from a long-time advocate of responsible investing—at a moment when ESG seemed to be at its peak.

By 2023, ESG had gone mainstream: companies had created Chief Sustainability Officer positions, linked executive compensation to ESG goals, and embedded ESG into their corporate strategies. By the end of 2021, over 4,300 investors representing $121 trillion had signed the Principles for Responsible Investment (PRI), compared with just 63 signatories and $6.5 trillion in 2006. Regulators developed taxonomies to define “sustainable” activities, and funds were increasingly evaluated based on their ESG integration. Even consumers began adjusting purchasing decisions according to companies’ ESG performance.

Edmans’ article resonated widely. Professor Alexander Bassen, an ESG expert and member of the Commission on Environment, Social, and Governance (CESG) of the European Federation of Financial Analysts Societies (EFFAS), described it as one of the most significant writings ever published on ESG investing.

What Does Edmans Mean by “The End of ESG”?

He argues that ESG should be understood as a long-term driver of value creation—not as a checklist to demonstrate virtue or signal priorities above all else.

Regarding ESG metrics, Edmans warns that while standardization enhances transparency, it can also encourage box-ticking rather than genuine value creation. Companies should focus on strategy-driven indicators that matter most to their industries—carbon emissions for energy firms, customer satisfaction for retail—and balance the usual “do no harm” approach with evidence of active contribution to society. Over-standardization, he notes, risks overshadowing harder-to-measure drivers such as innovation and corporate culture.

ESG-Linked Pay

Linking executive pay to ESG targets is a growing trend. It can demonstrate commitment, but narrow targets can also distract from broader goals—such as when diversity quotas overshadow genuine inclusion. Edmans suggests tying pay instead to overall long-term value creation, with ESG naturally embedded within it. ESG-linked pay can be useful when aligned with clear strategic goals, but it should not be mandated universally.

ESG Funds: Opportunity and Challenge

ESG funds exemplify both potential and pitfalls. They have attracted more than $17 trillion, often marketed as delivering both financial returns and social impact. However, evidence of consistent outperformance is mixed. These funds influence companies in two main ways: through “exit,” by raising capital costs for ESG laggards, or through “voice,” by engaging directly via shareholder voting and dialogue.

Yet the risks of greenwashing remain significant, making regulatory oversight essential. Importantly, accountability should apply to all funds—not only those labeled ESG.

Controversies and Complexity

The controversies surrounding ESG underscore its complexity. Ratings differ widely between agencies, reflecting subjective judgment rather than objective truth—a diversity Edmans views as valuable, not flawed. Binary labels like “ESG” versus “non-ESG” oversimplify corporate behavior—illustrated when defense companies were reclassified as ESG-friendly during the Ukraine conflict.

Meanwhile, ESG debates have grown increasingly polarized: critics dismiss it as ideology, while supporters sometimes ignore valid concerns. Edmans calls for constructive, evidence-based dialogue rather than dogma.

Research and Teaching: Integrating ESG, Not Isolating It

In academic research, Edmans advocates for broader and more detailed approaches—examining intangibles like innovation and human capital, focusing on specific dimensions such as climate impact, and recognizing that ESG’s effectiveness varies by context. Relationships are not always linear—overinvestment can harm rather than help. Qualitative data, such as employee surveys, can often provide richer insights than quantitative metrics alone.

In education, ESG should be integrated—not treated as a separate discipline. It belongs at the core of business practice, within areas like risk analysis and net present value (NPV) calculations. Finance courses on renewable energy projects, for instance, naturally combine ESG with traditional valuation tools. Educators should avoid superficial rebranding, ensure real expertise in complex topics like net zero, and focus on rigorous, practical teaching that embeds ESG into long-term value frameworks.

Conclusion: Integration, Not Abandonment

Edmans’ core message is that ESG is “extremely important—but nothing exceptional.” It matters for both shareholder value and social outcomes but should neither be politicized nor overemphasized. ESG should be viewed as a natural part of a broader value-creation strategy.

“The End of ESG” thus marks not the demise of responsible investing—but its evolution from a niche topic into an integrated, mainstream practice.