Rational Sustainability

Abstract

ESG is under attack from all sides. True believers wish to keep practicing ESG but call it something different; opportunists recognize that an ESG label no longer helps launch funds or attract customers; opponents seek to ban ESG outright. But if ESG is to be scrapped, what do we replace it with? Retiring the term but continuing the practice fails to address the legitimate challenges to ESG; abandoning the practice throws the baby out with the bathwater. This article proposes an alternative: “Rational Sustainability”. Sustainability refers to the goal – the creation of long-term value rather than the ticking of ESG boxes – which is of interest to all job titles and political leanings. Rational refers to the approach: it recognizes diminishing returns and trade-offs; it is based on evidence and analysis; and guards against irrational sustainability bubbles. Rational Sustainability is not a rebranding or a name change, but a fundamental shift in the practice of ESG to the informed creation of long-term value.

Keywords: ESG, SRI, CSR, sustainable investing, responsible business

JEL Classification: D62, G11, G34