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Whither the ESG Revolution?

Many companies are promising to align their objectives – including how they measure their performance – with broader imperatives relating to sustainability, development, and social well-being. But progress will require effective incentives, and creating them is far from being a straightforward matter.

MILAN – Environmental, social, and governance considerations are playing an increasingly prominent role in business. ESG is now central to how firms in a wide range of sectors, including finance and asset management, define their purpose, mission, and strategy, and it is increasingly shaping hiring practices and regulatory activity. But whether the apparent embrace of ESG will deliver real progress remains to be seen.

The promise of ESG stems from an important proposition. The key challenges we face today – from achieving reasonable levels of equity and equality of opportunity to ensuring environmental sustainability – cannot be overcome by any single actor, not even the government. On the contrary, effective solutions will require all hands on deck, including business, government, finance, education, the courts, and the nonprofit sphere.

By embracing ESG, businesses are effectively agreeing to do their part. They are promising to align their objectives – including how they measure their performance – with broader imperatives relating to sustainability, development, and social well-being. But achieving this will require effective incentives, and creating them is not a straightforward matter.

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