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A few weeks ago, I wrote a story about the anti-ESG movement in Texas’s foray into insurance. Soon after, I received a very thoughtful response from a declared ESG opponent taking issue with the idea that ESG metrics are relevant for insurers. The one issue: he had used the term ESG in a completely different way from how I had intended.
The experience was a reminder of something I’ve grown increasingly aware of in recent months while looking into the ESG backlash: the acronym means different things to different people. This matters for a wide range of reasons. Most obviously, it has at times led supporters and skeptics of ESG investing to talk past each other. But, perhaps more importantly, it has contributed to confusion among neutral observers, including many investors and business leaders.
I’m not going to solve this huge messaging challenge with this one column, but my hope is that talking about this confusion can help you sift through the noise.
As most readers of this column will likely know, ESG stands for environmental, social, and governance. But that’s where the agreement seems to end.
Talk to many proponents of ESG at big companies or financial services firms and you’re likely to hear the metrics described as a way to measure material business concerns. Hurricanes and droughts, to name two obvious examples, affect the bottom line, so considering those risks are not only an imperative for the planet, but make smart business sense.
Opponents of ESG, on the other hand, tend to describe it as some form of “woke capitalism.” These opponents argue that the investors and businesses that employ ESG are concerned with social outcomes untethered from financial returns and are willing to sacrifice profit to get those social outcomes.
So who’s right?
The truth is that both hard-nosed assessments of material risk and impact investing for social good could qualify as ESG investing. The Forum for Sustainable and Responsible Investment a non-profit that advocates for sustainable investment, breaks down ESG investing into five categories:
When you see these different descriptions together, it’s easy to see why there has been so much confusion. I’m consistently surprised by how many investors and executives I talk to outside the sustainability bubble see ESG as only one of those things. Others, like my polite email critic, conflate the different approaches to suggest a contradiction (in his thinking: a focus on impact must distract from a focus on returns). A recent PitchBook survey found growing negative sentiment about ESG investing among private market investors. Given the opportunity to offer open-ended responses, some said that ESG requires sacrificing financial performance. Others said that ESG is subjective and can be hard to measure.
So where does this leave us? A variety of frameworks are attempting to sort through the complicated language, and new government rules—both in the U.S. and Europe–should cut through the jargon and help focus the discussion. Some pro-ESG investors and sustainability leaders are also now finding new ways to talk about it, or are abandoning the phrase altogether. “We say RIP to ESG, not because we think it’s an end to this but because it’s the beginning,” Anne Simpson, the global head of sustainability at Franklin Templeton, a global investment firm, told me last month. “Science and society together drive the economics on this, and that’s why we see this as this deep wave towards sustainable finance, which is not a cute acronym that you can put on a T-shirt.”
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Write to Justin Worland at justin.worland@time.com