Most commentary right now is either declaring that ESG as a fad is going away, perhaps in favour of the newest ‘fad’—an obsession with AI; or it argues that the problem is the term itself, and if we pivot to a new one, the fraught politicisation and controversy will disappear. Neither is robust.

There is little chance of the megatrends that have driven the rise of ESG disappearing: these include climate change; inequality; rising employee activism and strategic leaking; the politicisation of business; and dramatic generational shifts in values.

Corporations still need to deal with these underlying issues, and one problem is that neither current accounting frameworks—which treat negative impacts on society as irrelevant ‘externalities’—nor current approaches to ethical business (which focus narrowly on not breaking the law) are fit for purpose.

Even if you were to try to go back to Milton Friedman and ignore all the noise… well, good luck attracting customers and employees over the long term.

Material problem

For the same reasons, renaming ESG as ‘material risk’ is unlikely to get rid of the controversy and politicisation either. In fact, one notable aspect of this whole field is that confounding jargon is a feature, not a bug.

At the end of the day, we are having a highly values-based debate about the appropriate role of business in society. Attempting to “depoliticise” this debate is hopeless, because business has always had political impacts, and politics is partly about values and how we view the future.

In summary, the debate and the controversy are here to stay, but so are the underlying drivers. Corporate leaders can’t put their heads in the sand, but they need to recognise the scale and difficulty of the new demands they are facing, and deal with them strategically.

Alison Taylor is a clinical associate professor at New York University’s Stern School of Business.