Beyond The Backlash: Reimagining ESG's role In Impact
By Sushant Kumar, and Jennifer Francis
Environmental, Social and Governance, or ESG, refers to a set of dimensions through which investors and stakeholders assess how an organisation manages non-financial risks and its societal impact. The acronym gained traction in 2004 when the UN’s Who Cares Wins report urged financial institutions to integrate environmental, social and governance factors in investment decisions.
The ideas behind ESG are older. Corporate responsibility debates go back to mid-twentieth century calls for accountability, and even earlier concerns about business ethics, labour rights and environmental externalities. Milton Friedman’s 1970 statement that a company’s only responsibility was to maximise shareholder profit marked one end of the spectrum. At the other end were growing calls for a social licence to operate, with companies expected to consider wider impacts beyond quarterly returns.
India’s journey reflects this global arc. In 2009, the Ministry of Corporate Affairs issued voluntary CSR and business responsibility guidelines, followed by the National Voluntary Guidelines in 2011. By 2012, SEBI required the top 100 listed firms to file a Business Responsibility Report, eventually expanded to the top 500. Today, the top 1000 listed firms must publish a Business Responsibility and Sustainability Report (BRSR) aligned with global ESG norms. From tentative beginnings, ESG in India has become a structured disclosure requirement, part of a wider effort to align corporate growth with sustainable practice.
Why ESG found favour
ESG rose quickly because it served two powerful functions.
Managing risk: ESG gave investors a way to evaluate how companies addressed challenges like climate change, social unrest or governance failures. It improved risk-adjusted returns and helped protect against reputational harm.
Providing legitimacy: ESG became a badge of responsibility. Companies used it to demonstrate that they were forward-looking, ethical and trustworthy, winning goodwill from regulators, consumers and employees.
The appeal was broad. Global asset managers such as BlackRock, Vanguard, and State Street integrated ESG into mainstream investing. In India, CRISIL, MSCI India, and CARE Ratings became prominent providers of ESG scores. By 2021, global assets under ESG-labelled strategies had reached USD 18.4 trillion. More than 95 percent of large global companies disclosed ESG metrics in some form.
The Backlash
The boom gave way to disillusionment. In Q1 2025, investors withdrew USD 8.6 billion from sustainable funds, the largest quarterly outflow on record. Across Europe, more than 300 funds dropped “ESG” from their names after regulators tightened greenwashing rules.
In the United States, ESG has been politicised, painted by critics as a vehicle for social agendas rather than shareholder returns. India too has seen regulatory recalibration. In April 2025, SEBI allowed rating agencies to withdraw ESG scores if companies failed to submit required disclosures or if demand was insufficient.
The backlash shows that ESG is vulnerable to overextension. When it attempts both risk management and positive impact, it risks diluting both roles.
Why ESG Still Matters
Despite the criticism, ESG remains valuable. If properly benchmarked and measured, it provides a framework for companies and investors to identify risks, build resilience, and enhance transparency. It helps integrate responsibility into financial decision-making, acting as a directional tool for sustainable growth.
The backlash is a call for course correction, not abandonment. ESG remains a foundation that anchors accountability and provides the scaffolding for deeper impact. Yet ESG is not an end in itself. Avoiding harm is not the same as delivering positive change. A company can earn high ESG marks for good governance policies or low emissions, but that does not mean it is closing inequality gaps or addressing urgent social needs.
True impact requires intentionality, clarity about whose lives are being improved, and metrics that reflect real-world outcomes. This is where impact management comes in. Frameworks such as the Impact Management Project , The Global Impact Investing Network ’s guidance, and the Principles for Responsible Investment offer tools to define outcomes, measure progress, and improve strategies. These approaches encourage organisations to ask: What change are we aiming for? Who benefits? Is it lasting?
Looking Ahead
ESG can be thought of as a starting framework that brings order to complex non-financial risks. But it is not the full blueprint for creating impact. That requires intentionality, purpose-led strategies, measurement as a mindset, learning, and the humility to adjust when outcomes fall short.
For organisations and investors, the challenge is to build on ESG rather than abandon it. Political winds may come and go, but the underlying imperative remains. Companies and societies exist in symbiosis. Long-term survival and building a lasting legacy depends on aligning growth with responsibility. ESG, for all its limitations, is still vital to that alignment.