VMware: ESG is struggling to grow. Here’s what comes next.

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You’ve probably read unflattering headlines about environmental, social and governance (ESG) initiatives in recent months. ESG has been branded a “scam” and a “loser” to yet another example of “woke capitalism”. One thing is certain: the heat of the spotlight fell on the ESG.

With this heat comes some questions. How worried should we be about ESG scrutiny? And what should we do, if at all?

On the first question, I will answer it clearly: I am not worried, nor am I surprised. ESG is not a passing fad. In fact, ESG investing is on track to surpass $50 trillion by 2025[1]- serious money that would represent more than a third of all projected global assets under management. It was only a matter of time before those profiting from the status quo began to push back.

The second question is more complex. While some critics are clearly exploiting this issue for political gain, others raise valid points about the dangers of greenwashing and how ESG performance versus impact is ultimately measured. This is where we have important work to do to ensure that ESG generates value for all stakeholders.

The fact is that ESG has matured in a somewhat “Wild West” environment.[2]. The demand for sustainable and socially responsible investments has skyrocketed overnight, with many organizations eager to follow suit. But without regulatory guidelines or standards in place, just about anything could be ESG labeled. This ambiguity has created the situation we find ourselves in now: a mess of conflicting ratings and standards that makes it difficult to distinguish between those who do the job and those who talk about a good game.

Fortunately, this ambiguity should begin to resolve itself soon. The desire for better standardization is strong, with VMware recently joining more than 80 other companies in calling for global alignment on sustainability reporting.[3]. And with regulators in the United States and the European Union poised to act in this space, I expect consensus around ESG disclosures and standards to emerge within the next year or so.

But standardizing reporting is only part of the puzzle we still have to solve. It’s not enough. For ESG to realize its full potential, it must also create impact in the real world. For me, operationalizing a fully integrated and results-driven ESG strategy is the holy grail.

This question was at the heart of the concerns of CEOs, directors, investors and practitioners who gathered at the ESG Summit in Aspen last month. I was there to help lead the dialogue on building a corporate culture that is fully on board with ESG principles – and one of the key points I made was that there is a big difference between expertise and mastery.

Many companies are currently developing their ESG expertise by recruiting dedicated specialists, researching industry best practices, and collecting and reporting data. But fluidity requires something more.

Fluency occurs when a company’s board, management team and staff are aligned and share responsibility for creating ESG outcomes. This happens when an organization’s values, business model and ESG principles become one. Simply put, it happens when ESG ceases to exist because it has been naturally absorbed into a company’s culture and operations.

Achieving fluidity is a journey, of which we are still only at the beginning. But it is essential to deliver on the promise of ESG and create the measurable impacts that will bring us closer to a more sustainable, equitable and resilient world.

As ESG fades away and becomes more central to business operations around the world, it will continue to attract more attention and criticism. These are growing pains in an emerging reality. But that’s not a sign of weakness, it’s a sign of success. By focusing on transparent standards and real impact, we can achieve our ultimate goal: to make ESG obsolete, because it has become the way business is done.

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[1] Bloomberg, “ESG assets of $50 trillion will reshape $140.5 trillion in global assets under management by 2025, according to Bloomberg Intelligence,” July 2021.

[2] SDxCentral, “VMware VP: ESG Confronts Regulatory ‘Wild West’,” October 2021.

[3] A4S, “Business and Finance Community Respond to the Proposed IFRS Sustainability Disclosure Standards”, July 2022.

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