ESG

ESG is a tool that investors use to assess a company’s environmental, social and governance performance (ESG). It covers factors such as carbon emissions, energy use, waste, labour standards, diversity, human rights, board oversight, shareholder rights, and data privacy. ESG is increasingly used to screen investments for long‑term value and risk, but there is no universal scoring system, so investors often rely on multiple rating platforms.

ESG grew out of earlier movements in socially responsible investing and corporate social responsibility, evolving from 1970s SRI campaigns and 1980s divestment movements to the 1990s “triple bottom line” framework; the UN’s Millennium Development Goals and the UN Global Compact’s coining of the term ESG in 2004 helped bring environmental and social factors into mainstream investment thinking.

Modern ESG was shaped by global initiatives that formalised disclosure and accountability, including the founding of the Carbon Disclosure Project in 2000, the 2015 Sustainable Development Goals and the Taskforce on Climate‑related Financial Disclosures, the 2017 Compact for Responsive and Responsible Leadership, and new regulations such as the EU’s Corporate Sustainability Reporting Directive.(2)

Growing sustainability awareness has expanded the ESG market to USD 30 trillion in 2022, with projections of USD 40 trillion by 2040. Investors are increasingly incorporating ESG criteria into decision‑making, even accepting lower returns to reduce long‑term greenwashing risk.

However, ESG ratings remain unreliable due to inconsistent methodologies, unaudited and selective corporate disclosures, and regulatory pressures that incentivise companies to highlight positive outcomes while obscuring negative ones. This creates opportunities for greenwashing, and companies with high ESG scores are paradoxically more likely to face greenwash accusations.(3)

ESG can be confused with Corporate Social Responsibility (CSR). CSR is a voluntary, philanthropic practice focused on charitable or ethical initiatives outside a company’s core business, whereas ESG is a regulated, data‑driven assessment of how a company operates. ESG has stricter reporting standards, measurable KPIs, and clearer benchmarks, while CSR has no mandatory requirements, and although CSR has a longer global history, ESG is still gaining recognition in some regions such as Latin America and the Middle East.

Non-governmental organisations (NGOs) shape ESG agendas by raising public awareness of sustainability issues, acting as watchdogs that hold companies accountable and push for transparency, and collaborating with businesses and policymakers to embed ESG principles into legislation and corporate practice. Despite limited resources and restricted access to large corporations, NGOs continue to influence ESG frameworks through advocacy, education, and creative strategies that drive long‑term societal and environmental change.

Consumer interest in sustainability is rising, with over 60% of US consumers willing to pay more for sustainable packaging and 78% valuing a sustainable lifestyle, yet many CPG executives still report difficulty generating sufficient demand for ESG‑aligned products. A five‑year NielsenIQ–McKinsey analysis of 600,000 products found that consumers are shifting spending toward items with ESG‑related claims, with such products growing faster in two‑thirds of categories and showing especially strong growth when they carry multiple or less‑common claims.

ESG‑related product claims are not independently verified and often rely on unaudited corporate disclosures, creating opportunities for greenwashing. Companies may selectively report positive outcomes or use past ethical behaviour to legitimise current practices, and the NielsenIQ–McKinsey study found that products from companies with higher ESG scores are paradoxically more likely to face greenwashing accusations, underscoring the need for companies to align claims with genuine ESG strategy, embed ESG into product design, and invest in innovations that address multiple sustainability concerns.(6)