ESG: The Function That Reports What It Cannot Change
The Function That Reports What It Cannot Change
ESG isn’t failing because the framework is weak. It’s failing because reporting was never a lever.
ESG has produced an enormous quantity of disclosure and remarkably little change in conduct. The reports get longer and more rigorous; the behaviour underneath moves slowly if at all.
The usual explanation is that the framework didn’t go far enough, or was captured by greenwashing, and that the answer is a better one. That explanation is comfortable; it’s wrong, and it guarantees the successor fails identically.
Because the problem was never the quality of the framework. ESG is a reporting layer, and a reporting layer cannot move what it reports on.
What a disclosure actually does
A disclosure takes something an organisation is doing and produces an account of it. That account goes outward – to investors, to regulators, to anyone assessing the company from outside.
What it does not do is alter any of the arrangements that produced what it reports. Who owns the company. What executives are paid for. Who holds the decision rights over the operations generating the emissions. Whose interests the fiduciary duty binds the organisation to serve.
The report leaves all of that untouched, and it points almost entirely in one direction.
This is where the “ESG is politically motivated” critique misses the point entirely. Shareholder primacy isn’t an opinion that better values could dislodge. It is enforced by ownership structures, board composition, compensation design, fiduciary law, and what capital markets reward. An organisation reporting on its social and environmental impact while every load-bearing incentive rewards shareholder return is not being hypocritical. It is behaving exactly as it is built to behave.
You cannot out-report an incentive structure. When the disclosure points one way, and the architecture points another, the architecture wins, which is why two decades of increasingly sophisticated reporting sit on top of two decades of largely unchanged conduct.
The function nobody designed properly
A second structural fault gets less attention because it falls on a department rather than a principle.
Consider the position of an ESG or sustainability function.
It is accountable for the organisation’s environmental and social performance. It holds decision rights over none of it. It cannot change procurement, alter capital allocation, determine what a business unit is measured on, or decline to approve a project that will worsen the numbers it is answerable for.
What it can do is measure, report, and advocate. So that is what it does, and it is then judged on outcomes produced entirely by decisions made elsewhere.
That is accountability without authority, and it has a predictable consequence. The function becomes expert at the one thing it controls: the quality of the account. Reporting improves. Methodology tightens. The disclosure becomes genuinely excellent.
And the conduct doesn’t move, because nothing in the function’s remit was ever capable of moving it.
Which is worth saying plainly to anyone running such a team: the frustration is not a failure of influence or persuasion. It is an accurate reading of a position that was never given the means to produce what it answers for.
Why the replacement fails too
This is the uncomfortable part for everyone proposing what comes next.
Any successor: a better acronym, a deeper standard, a more rigorous taxonomy, fails for the same reason the moment it arrives as a framework to adopt rather than a change to the structure. Give an organisation a more enlightened set of things to report, leave the ownership and incentive architecture untouched, and within two years you have the same performance in updated vocabulary.
The relabelling that critics correctly diagnose in ESG is not a flaw specific to ESG. It is what any responsibility framework becomes when laid over an architecture that rewards something else. Changing the label changes the report.
And the entire public conversation sits at this level: which framework, which standard, which metrics, while what determines corporate behaviour sits a layer below frameworks entirely. As long as the debate stays there, it will keep producing new frameworks and the same conduct.
But the reporting isn’t going away
Here is where this argument has to be practical rather than merely correct.
In several jurisdictions, sustainability reporting is no longer optional. The obligations exist, the deadlines are real, and a company subject to them cannot respond to a structural critique by declining to report.
So the useful question is not whether to do ESG. It is what would make the disclosure consequential rather than decorative.
Three things, in ascending order of difficulty.
Route the number to someone who can change it.
At present, the report goes outward: to investors, regulators, rating agencies, all of whom are slow, diffuse, and mostly unable to act on it within any timeframe that matters. Internally, it goes to a board paper and stops. A figure that appears in a divisional leader’s own scorecard, alongside their commercial numbers, is a figure somebody is positioned to act on. A figure in an annual report is a figure somebody is positioned to explain.
Give the function an obligation it can enforce, or stop holding it accountable.
A sustainability team with no authority can still be structurally useful if its findings must be formally received and answered by someone who does hold authority, not acted on necessarily, but answered, on the record, by a named person. That converts advice, which is free to ignore, into a response somebody made. Without it, the function is to diagnose conditions it cannot treat and absorb the blame for conditions nobody treated.
And stop treating the disclosure as evidence of anything.
The most damaging effect of good reporting is that it reads as progress. A board that receives a thorough sustainability report has received a thorough sustainability report, and that is all it has received. The question worth asking of it is not whether the figures improved, but which decision anywhere in the organisation was made differently because of them. If the answer is none, the report is an expense rather than an instrument.
The actual distinction
So the real line is not between ESG and some better framework. It is between treating corporate responsibility as something an organisation reports and treating it as something the organisation is structurally arranged to produce.
Reporting is the visible, auditable, defensible version. Its successor will be too, if it arrives as another framework rather than a change to who decides what and who carries the consequence.
Which leaves a single question for anyone with a sustainability function and a reporting obligation: does any decision in this organisation come out differently because of what we measure?
If there is, the reporting is doing work.
If there isn’t, improving it will not help. And the people in that function are being held answerable for something no amount of rigour on their part was ever going to deliver.