Why businesses should maximise profit by maximising purpose

The ESG model needs to be adjusted as it currently relies too much on governance and that can be costly.

- Rajeev Peshawaria

Amid the recent pushback against ESG (environmental, social and governance) principles, chief executives and business leaders have been calling for a return to a more hard-nosed, profit-driven approach. This reaction isn't surprising as the framework has not only failed to achieve the desired impact on the environment and society, but also imposed significant financial and resource stress on businesses already battling market uncertainty driven by geopolitical tensions and rising costs.

Opponents of the model also argue that it negatively impacts financial performance because focusing on social or environmental issues distracts leaders from profit generation.

However, I argue that ESG can be a practical framework to achieve both profit and positive impact on the environment and society, but the model needs adjustments.

In its current practice, the primary issue with the ESG framework is its overreliance on governance (G) mechanisms, such as regulation and financial rewards, to change behaviour.

Many organisations see these as costly compliance burdens and resort to greenwashing and window dressing.

The lack of progress in addressing social and environmental sustainability is mainly due to a lack of genuine commitment. In our recent report, Boards As Stewards Of Sustainability: View Across Asia Pacific, only 21 per cent of Asia-Pacific boards prioritise sustainability, and 78 per cent of directors attributed this inaction to a lack of knowledge - a weak justification in today's digital era where information is readily accessible. The actual problem is not a lack of knowledge but a lack of will and intent.