ESG — which stands for Environmental, Social and Governance — refers to the standards and practices companies use to manage their impact on the environment, their relationships with people, and their internal accountability structures. ESG has become a major focus for investors, regulators, and consumers in recent years, with businesses expected to demonstrate their sustainability credentials not just in action, but increasingly through formal disclosure and reporting.
Yet despite mounting pressure from regulators, stakeholders, and industry bodies, there is growing concern that ESG reporting is failing to deliver on its promise. According to a 2023 McKinsey Global Survey, only 43% of organisations say they’ve captured financial value from their ESG efforts. While the survey highlights that some companies are realising strategic benefits, the majority are not — raising questions about whether current ESG practices are genuinely driving positive change.
This concern is echoed across industries. While ESG reporting frameworks aim to enhance transparency and accountability, many businesses now find themselves investing significant time and resources into complex disclosure processes — often without a clear link to improved environmental or social performance. A 2024 Financial Times article noted that companies are spending millions on ESG compliance, with increasing frustration that this isn’t translating into tangible outcomes.
The issue is particularly pronounced for small and medium-sized enterprises (SMEs). Unlike large corporations, SMEs often lack the dedicated ESG teams or technical consultants needed to navigate regulations such as the EU’s Corporate Sustainability Reporting Directive (CSRD) or the European Sustainability Reporting Standards (ESRS). For these businesses, the cost of compliance can quickly outweigh the benefits — and the pressure to produce polished reports can crowd out the time needed to actually implement improvements.
Even among larger companies, there’s evidence that ESG compliance is being treated as an administrative task rather than a lever for transformation. Many companies find themselves producing extensive reports for investors or regulators, not because it helps them improve, but because not doing so might expose them to reputational or legal risk. In this environment, ESG reporting becomes more about box-ticking than behaviour change.
This disconnect between reporting and impact has been echoed in research on environmental management systems. For example, several studies examining the adoption of ISO 14001 — an internationally recognised environmental management standard — have found that while certification can enhance legitimacy and stakeholder trust, it does not always lead to measurable environmental improvements, particularly among SMEs. Research suggests that the complexity of ISO 14001 implementation often stretches the capacity of smaller firms, and in some cases, certification becomes more about symbolic compliance than real operational change.
None of this is to suggest that ESG reporting is inherently flawed. In fact, when approached with the right intent — and when aligned to strategy, material issues, and genuine stakeholder dialogue — reporting can be a powerful tool for driving long-term value and accountability. But there is a real danger that current trends are creating systems where companies feel compelled to “look good on paper” rather than invest in what truly matters.
This debate also comes at a time of increasing political pushback against sustainability and social responsibility agendas. Net Zero targets, diversity and inclusion policies, and ESG frameworks more broadly are facing mounting criticism, often portrayed as anti-business or disconnected from economic realities. While some of these concerns reflect genuine frustrations with complexity and cost, the broader risk is one of complacency — that businesses begin to assume climate change isn’t an issue anymore, or that commitments to equality and human rights can quietly fade from view.
In reality, these challenges are more urgent than ever. Climate change, biodiversity loss, and social inequality remain defining issues of our time. This period of criticism and reflection should be seen not as a reason to retreat, but as an opportunity to reset. It is a chance to build a better shared understanding of the scale of the problems we face — and to ensure that the measures we take to address them are proportionate, achievable, and ultimately focused on enabling the impact we urgently need.