ESG proponents are going back to basics, prioritizing two stakeholders: employees and customers

Fortune’s Impact Initiative kicked off here yesterday amid a fragile economy and a political climate increasingly hostile toward environmental, social, and governance (ESG) initiatives. 

It added up to a feeling that ESG as an acronym is on the backfoot or perhaps even headed for an “ESG winter,” where only the most material issues survive. It certainly led many of the executives here to be focused more on the bottom line of their work. Two stakeholders were mentioned most often as the north star in that quest: Employees and customers.  

First consider employees. A company’s “path” on social issues is “clearest when turnover numbers get better,” said Chris Hagler, head of ESG at Independent Point Advisors. “Employee engagement is a leading indicator” of future growth, another participant said. 

On sustainability, the key stakeholder is the customer. The good news, according to a Deloitte representative, is that “people are willing to pay for sustainability.” An added caveat is that “consumers don’t want to pay for advocacy.” (Deloitte sponsors this newsletter.)

When you consider those two insights, there doesn’t seem to be a whole lot of ideological controversy left. In fact, they align quite closely with two statements from someone who wasn’t at Impact Initiative (and is unlikely to be caught at any ESG-aligned conference), Charles G. Koch, chairman and co-CEO of Koch Industries. In his 2015 book Good Profit, Koch wrote:

“Giving all our employees the opportunity to realize their potential by empowering them in roles that fit their talent and passion is critical to both their success and the company’s. It also benefits everyone else.” 

And:

“The only reason a business should exist (and the only way it can legitimately survive long term) is to create value in a responsible way. The best way to do that is to focus on creating value for others.”

Koch offered those comments long before the current controversy around ESG. 

The takeaway? Perhaps it’s time for ESG to move beyond its label and go back to the basics of the role of business in society. Critics of ESG, meanwhile, may want to reread about the fundamentals of responsible business, as outlined by a classic liberal such as Koch. The outcome may well be more common ground between the opposing sides than previously imagined—and an opportunity to deescalate the current controversy. 

More news below.

Peter Vanham
peter.vanham@fortune.com
@petervanham

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This edition of CEO Daily was curated by Nicholas Gordon. 

Correction, Sept. 13, 2023: This story has been updated to correct the title of Koch's book, his title, and political leanings.