We live in dynamic times. In so many ways government and corporate America have been unable to respond nearly so quickly as the marketplace demands. They are Building Better Buicks when the market wants Technologically Talented Telsas. This gap is especially apparent among my students. This generation of consumers are desparately concerned with issues related to the environment, sustainability, and diversity. 

One compelling example of this gap between what corporations offer and the market increasingly demands is the recent insistence on ESG - the Environmental, Social, and Governance qualities that allow our institutions and society to sustain themselves, demonstrate resiliency, and grow. 

No element of the ESG movement is entirely new. The term Environment is a metaphor for the Greek word Oikos, which literally means house, but implies our broader surroundings. This is the root of such studies as ecology, the scientific study of one’s house or environment, and economics, its management. Certainly we have been trying to first master, then manage, and now repair our environment ever since the Greeks coined the expression "eco" millennia ago. 

Until recently, humankind managed to ignore the symbiotic relationship between the health of our species and the health of the environment. More recently, though, we have discovered that exponentially growing human populations, and exponentially growing economies, have outstripped the ability of humans to live sustainably within the confines and cleansing power of Mother Nature. The symptoms of this recent imbalance have included global warming, depletion of the ozone layer, pollution, monocrop sensitivity to pests, soil and aquifer depletion, more extreme weather, and even forest fires of greater intensity. 

The damage these natural disasters costs humankind tens and hundreds of billions of dollars each year, and hundreds of times more than that to remedy for the future. Some have made the troublingly-flawed argument that such rebuilding from increasingly frequent natural disasters acts as a stimulant to the economy. Nothing can be further from the truth - else we’d be building structures just to knock them down and rebuild them again in the interest of economic activity. 

No, these damages are real and costly, and divert resources away from what we truly value, our resiliency, our ability to sustain ourselves and earn a living, even our democracy. Enlightened corporations understand that caring for the environment is no longer simply a slogan, but is actually a bottom-line factor that can strengthen their balance sheets. As our economy moves more toward solutions that clean up past environmental degradation and require degradation be “priced” through such avenues as a carbon tax, institutional and individual investors, and customers now demand that corporations be good environmental citizens. 

This increased awareness is moving our institutions from purely private concerns isolated and disconnected from society to entities intimately tied to the goals of society. This is the “S” in ESG. The marketplace increasingly demands our private and public institutions pursue the enhancement of societal values at best, and don’t hinder them at least. This means behaving conscientiously and ethically, ensuring transparency, and promoting equity in addition to the efficiency for which all institutions ought to strive. 

Our corporations must also properly assess and quantify their vulnerability toward cybercrime and their efforts to protect the data that represents their customers, the quality of their labor practices and their sustainability, employee health and safety, and their resilience in the face of pandemics, global warming, and other forces that impinge on operations. Some even ask our institutions to what degree their suppliers operate within ESG principles. 

Within this term we include the degree to which our institutions promote human rights, protect consumers, have sensitivity and regard toward biodiversity, and, importantly, ensure diversity of thought within our institutions. We promote such diversity by valuing the perspectives and experiences of others, especially those who have for too long been locked out of leadership in our organizations. By not including the perspectives of minorities, the economically disadvantaged, or those of different gender identities, our institutions don’t reflect society, don’t produce the types of goods and services society values, and ignore injustice. Our society and economy are simply too complex and interrelated to trust that an invisible hand arising from caveat emptor will properly policy our experiences with institutions. That discipline must now flow from the top of our organizations. 

Increasingly, we see that our demands for environmental sensitivity and social progressivity must also be incorporated into our governance structures, the “G” in ESG. Investors and customers alike need to know that our corporations and government are governed around the need to satisfy ESG principles. Consumers don’t want companies to simply Build Better Buicks. They demand that companies share their values. Institutional investors also know they represent millions of consumer-shareholders, through pension plans and mutual funds, and are now demanding that our corporations have not only an eye toward a sustainable and diverse future, but are also laser-focused on ESG. 

What measures tell us that a corporation has been enlightened by the ESG movement? There’s a saying in business schools. You can’t enhance what you don’t measure. The measures that tell a consumer-shareholder their investment in or purchases are from a company poised and contributing to the future include the degree of pay equity, measured as the ratio between the highest and lowest salaries in the company, the share of capital spending in investments that enhance and pay sustainability dividends such as solar power and LEEDS certification for buildings, the percentage of waste that is recycled, the diversity of its employees and of the corporate board, the rate at which their corporate health and strategies are disseminated, and their environmental full cost accounting (EFCA), sometimes called “the triple bottom line”. 

This triple bottom line adds to our traditional cash flow statements and balance sheets the true costs that include negative externalities arising from pollution or unpriced carbon emissions, the various indirect costs borne not by the corporation but imposed society as a whole, the net present value of environmental legacies, the full costs over the lifecycle of a product, and the risks involved with an unsustainable or less-than-resilient corporate strategy. 

Collectively, ESG informs the investor or consumer to the degree to which an institution acknowledges its role in society and plans for it. All legacies and costs will be paid by somebody at some time, but ESG requires us to pay them forward, or at least acknowledge and account for such legacies. 

Every institution can be measured along these ESG lines. Those institutions that will fare well in the future are the ones that understand what ESG hopes to accomplish and how our corporations, our schools, our government, and our nonprofits are embracing such a focus on the future, its intricacies, the various symbioses, and ultimately our resiliency and sustainability. 

We live in an era of hypercompetition when most of the goods and services and financial products we purchase are commodified and minimally differentiated. Now, the differentiator is the degree to which the institutions that provide us with these goods and services also embrace values that allow the world to live in better harmony in the 21st Century than perhaps it did in the 20th Century of domination and recklessness over environmental and social issues. 

From that perspective, ESG is now good business, and contributes to profitability and institutional success. Increasingly, consumers, regulators, accreditors, institutional investors, and financial markets are demanding ESG. Those who don’t embrace these values are still building our father’s Oldsmobile when everyone else is buying a Tesla. It might be easier to build that Buick, or to game or ignore ESG, but now everybody’s watching. Rather than simply a box to check, increasingly society is recognizing our interrelatedness, and expecting our institutions to do so as well.