If ESG and DEI Come Back, Do It Right This Time

Any revival of environmental, social, and governance strategies—and diversity, equity, and inclusion—should begin with clear objectives, credible evidence, and measurable value creation.

A Change of Climate?
Take Legitimate Criticism Seriously
Build Inclusion Around Opportunity and Performance
Make Value Creation the Organizing Principle
Read Milton Friedman Carefully

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By Bruce Bolger

Public discussion of ESG (environmental, social, governance), DEI (diversity, equity, and inclusion) came to a screeching halt when the Trump administration took power. Since the mid-term election that has already begun to change. Unless the movement sticks to value creation instead of virtue-signaling, it will likely ignite the same storm of criticism that helped set it back by years.

What’s changing? Distrust of big business, concerns about the distribution of economic opportunity, anxiety over artificial intelligence, more tangible evidence of serious climate change predicted well in advance, and now the almost national repudiation of the Trump administration at the polls, has opened the door to a renewal of focus on demonstrating how business success for shareholders can improve peoples’ lives without offloading costs on to society.

This Masters of Scale discussion between Bob Safian, host of Rapid Response, and, Harvard Business Review’s editor at large and former editor in chief, reinforces my point that we’ll be hearing more debate about the purpose of business. Although this show with Adi Ignatius was produced a month before the election, Ignatius describes the shift from decades of prioritizing shareholders to a broader responsibility toward employees, customers, society, and the environment.

He argues that Trump’s election disrupted that emerging consensus, leaving a question that needs a clearer answer: What responsibilities should companies and CEOs actually have? Does Trump’s setback signal and the growing distrust of business signal that the debate is coming back? If so, the question will be whether business leaders can agree on a clearer, more durable understanding of corporate responsibility that focuses on value creation instead of moralization.

A Change of Climate?

If the political climate becomes more favorable to environmental, social, and governance strategies, or ESG, organizations that retreated from these efforts may feel emboldened to return. Diversity, equity, and inclusion, or DEI, could regain prominence as well. That would create an opportunity. It would also create a risk: repeating the mistakes that made these movements vulnerable in the first place. A change in political fortunes cannot substitute for a better approach to management. If ESG and DEI return, their advocates should insist on greater discipline, clearer definitions, audited reporting, and evidence that their efforts benefit the business and the people whose contributions make it successful.

The Enterprise Engagement Alliance warned against virtue-signaling in an article published in 2021.

Take Legitimate Criticism Seriously

Supporters of ESG and DEI should acknowledge that much of the criticism was justified.

In investment markets, the ESG label too often left basic questions unanswered. What did a fund seek to accomplish? Did it assess financial risks associated with environmental and social issues, seek measurable improvements in those areas, or exclude particular industries? How were competing considerations weighed? These are different investment approaches. A common label does not make them interchangeable.

The concerns were more than political talking points. In an April 2021 risk alert, the SEC’s Division of Examinations reported instances of potentially misleading ESG claims, weaknesses in controls, and inconsistencies between investment practices and disclosures.

The lesson is that a claim about responsible investing should be supported by a process that investors can understand and that reviewers can verify. A credible approach must explain its criteria, acknowledge tradeoffs, and demonstrate that actual decisions follow the stated methodology. Otherwise, the label can become a marketing device that undermines confidence in legitimate work.

Build Inclusion Around Opportunity and Performance

DEI deserves the same scrutiny. An organization has sound business reasons to identify talent, customers, distribution and supply chain partners across the widest possible population; nurture future talent, customers, or supply chain and distribution partners; remove unnecessary barriers and create conditions in which as many people as possible can contribute. It makes sense to develop stakeholders within adjacent communities. On the other hand, DEI objectives become harder to defend when programs lacked clear purposes, relied on assumptions about people based on their identities, asked people to make sacrifices in repayment for the terrible behavior of past generations, or measured participation without assessing results.

Training sessions that many people of all races found uncomfortable, public commitments, and donations did not by themselves establish that an organization had become fairer or more effective. Instead, the relevant questions concern access, treatment, opportunity, and measurable performance.

Race-based preferences, while well-intentioned, pitted races against one another, igniting resentment in poor white families that often lack access to the best schools, learning resources, and jobs as well.

One constructive approach rarely discussed is to give appropriate consideration to the circumstances in which people demonstrate merit. A student who excels while working to support a family, attending an under-resourced school, or managing substantial personal hardship has demonstrated something meaningful. An employer may similarly discover exceptional ability among candidates who lacked access to prestigious institutions, professional networks, or conventional career paths. Recognizing achievement in this context can improve the assessment of talent or capabilities of other stakeholders while preserving demanding standards.

Economic disadvantage and adversity do not capture every barrier, including discrimination. They do, however, provide a practical basis for broadening opportunity across racial and ethnic groups. Organizations can combine that approach with fair selection processes, wider recruitment, useful development opportunities, and accountability for how people are treated. The business objective should be to find capable stakeholders wherever they can be found, help them succeed, and ensure that irrelevant barriers do not prevent their contributions.

Make Value Creation the Organizing Principle

The strongest case for responsible business begins with how an organization creates value. Can it earn sustainable profits while reducing the costs it imposes on employees, customers, communities, and the environment? Can it improve performance by strengthening relationships with the people on whom its success depends?

Cleaner air and water have public value. Businesses can also find commercial opportunities in preventing pollution, reducing waste, improving efficiency, and developing safer products. Each proposed investment still requires an honest assessment of costs, benefits, risks, and timing. A worthwhile environmental objective does not automatically establish a financial return for every project.

The same discipline applies to stakeholder relationships. Reaching customers across economic and ethnic groups can expand a market. Developing employees can strengthen capabilities. Treating distribution and supply chain partners fairly can support reliability, collaboration, and innovation. These possibilities become a strategy when management establishes objectives, assigns responsibility, listens to the affected stakeholders, and measures outcomes.

For an inclusion initiative, that might mean examining whether recruitment reaches qualified candidates previously overlooked, whether advancement processes recognize performance, and whether capable employees have reasons to stay. For an environmental initiative, it might mean tracking reductions in waste, resource consumption, or harmful emissions alongside operating costs and investment requirements.

Governance should make those commitments credible through oversight, accurate reporting, and accountability when results fall short.

Read Milton Friedman Carefully

Even Milton Friedman’s famous argument about the social responsibility of business left room for investments in employees and communities. In his 1970 New York Times Magazine essay, Friedman recognized that community amenities could serve a company’s long-term interests, including by helping it attract desirable employees. His objection concerned executives using owners’ resources for social objectives disconnected from their responsibilities to those owners.

That does not make Friedman an advocate of today’s ESG movement. It does show that a business case for investing in stakeholder relationships can be consistent with a commitment to profitability. Companies should be able to explain that case directly and substantiate the results.
If ESG and DEI regain attention, their advocates should resist the temptation to celebrate a return to prominence, should it occur, as an achievement in itself. The real work is to build organizations that create durable value, expand opportunity, and account honestly for their effects on others.

The organizations that do this best will have more than a declaration to offer. They will have tangible results no one can deny.

Enterprise Engagement Alliance Services

Founded in 2009, the Enterprise Engagement Alliance helps organizations create measurable value through people by aligning employees, customers, partners, and other stakeholders around a shared purpose, goals, and values. Explore EEA services and membership options.

1. News, research, and marketing opportunities

ESM Weekly: Stakeholder management and enterprise engagement coverage since 2009. Subscribe | Media kit.
RRN Weekly: Total rewards and recognition coverage since 1996. Subscribe | Media kit.
EEA YouTube channel: Enterprise engagement, human capital, and total rewards programs since 2020.

2. Membership, learning, and certification

The EEA Impact Academy teaches a systematic approach to aligning people, purpose, and performance. Complimentary Professional Management Membership is available to qualified corporate executives and managers, professors, and educators. Paid Corporate and Solution Provider memberships support team learning and professional development. Explore learning and registration.

3. Books and implementation resources

Enterprise Engagement for CEOs introduces the framework for senior leaders.

Enterprise Engagement: The Roadmap provides a practical implementation framework.

4. Advisory services, assessments, and impact analysis

Advisory services and research support stakeholder management and implementation. EEA resources include the Enterprise Engagement Index, People Value Impact Calculator, and independent analysis of engagement, incentive, recognition, loyalty, and related initiatives.

5. Permission-based targeted business development

Strategic communications and business development services help identify and build relationships with the people most likely to buy through combined newsletters, thought leadership, and social media.

Contact: Bruce Bolger at TheICEE.org; 914-591-7600, ext. 230.