THREE letters — ESG — have reshaped global finance, supply chains and corporate strategy at remarkable speed.
Once considered a niche concern, environmental, social and governance factors now influence investment decisions, business operations and regulatory compliance across the world.
Why has ESG gained such momentum? More importantly, is it genuinely advancing the sustainability agenda? The rapid rise of ESG is not driven solely by altruism. Three powerful forces are behind its growth.
First, there is a strong business case. Major asset managers such as BlackRock, Vanguard and State Street collectively manage trillions of dollars guided by ESG considerations.
Companies with strong ESG performance often enjoy lower financing costs, fewer regulatory surprises and greater long-term resilience. In an increasingly uncertain world, sustainability has become closely linked to risk management.
Second, the competition for talent is intensifying. Younger generations increasingly want to work for organisations that demonstrate a genuine commitment to environmental responsibility, ethical governance and social impact. Companies that fail to meet these expectations risk losing skilled employees to competitors that do.
Third, regulation is advancing rapidly. New sustainability reporting requirements, climate-related disclosures and due diligence obligations are emerging across major economies. ESG is no longer a voluntary public relations exercise. It is becoming part of the licence to operate.
Self-interest undoubtedly plays a role in the ESG boom. Yet self-interest, when aligned with broader societal goals, can become a powerful force for change.
This is where ESG’s real value lies.
For decades, sustainability discussions were largely confined to academic research, international conferences and policy circles. Ambitious goals such as the United Nations Sustainable Development Goals inspired important conversations, but often felt disconnected from boardrooms and quarterly earnings reports.
ESG has helped bridge that gap by translating sustainability into the language of business: risk, resilience, reputation and long-term value creation.
That translation matters because it unlocks capital. Governments alone cannot finance the transition to a more sustainable economy.
When investors demand greater transparency on carbon emissions, water use, labour practices or corporate governance, companies are incentivised to change behaviour in ways that can have tangible real-world impacts.
However, ESG should not be mistaken for the destination. It is a tool, not the solution itself.
Too many organisations treat ESG as a checklist rather than a commitment. A glossy sustainability report, a climate pledge or a token governance reform may improve optics, but they do not necessarily create meaningful change. This is ESG theatre rather than genuine sustainability.
At its best, ESG serves three important functions.
First, it highlights risks that traditional financial reporting often overlooks. A company may appear profitable today, but poor environmental practices, weak governance or social controversies can create significant future liabilities. ESG encourages businesses and investors to consider these risks before they become crises.
Second, ESG helps direct capital towards more sustainable business models. As investors increasingly favour companies with stronger ESG performance, businesses are encouraged to adopt practices that are cleaner, more transparent and more resilient.
Third, ESG creates accountability. Once organisations begin measuring and disclosing information such as carbon emissions, workplace diversity or governance practices, stakeholders gain the ability to track progress and challenge poor performance.
Transparency does not guarantee improvement, but it makes it harder to ignore shortcomings.
Nevertheless, ESG faces a critical challenge. If it becomes little more than a branding exercise, it risks undermining the very goals it seeks to achieve. The appearance of progress can be just as dangerous as inaction if it distracts attention from deeper problems.
Several improvements are therefore necessary.
The development of globally comparable reporting standards is essential. Efforts by organisations such as the International Sustainability Standards Board to create consistent disclosure frameworks are important steps in the right direction. Without common standards, ESG assessments risk becoming subjective and inconsistent.
There must also be consequences for misrepresentation. Companies that deliberately mislead investors or stakeholders about their ESG performance should face penalties comparable to those imposed for financial misreporting.
Finally, organisations must focus on issues that are genuinely material to their operations. Not every ESG issue carries the same significance for every industry.
Businesses should concentrate on the environmental, social and governance risks that have the greatest impact on their operations and stakeholders, rather than pursuing superficial initiatives designed primarily for publicity.
Ultimately, ESG is not about making companies appear sustainable. It is about helping them become sustainable.
It offers a framework for navigating a world increasingly shaped by climate risks, social expectations and regulatory change. While ESG alone will not solve every sustainability challenge, it can help align business incentives with long-term societal interests.
The journey towards a more sustainable economy remains long and complex. ESG is not the destination, but it may prove to be one of the most important bridges helping us get there. ‒ June 20, 2026
The author is affiliated with the Tan Sri Omar Centre for STI Policy Studies at UCSI University and is an Adjunct Professor at the Ungku Aziz Centre for Development Studies, Universiti Malaya.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
Main image: DEISO
