Beyond greenwashing: how ESG became a corporate battleground

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ESG is one of the most polarising and misunderstood topics in business right now. What started as a push for more responsible companies has turned into a political battleground. Companies that once proudly waved the sustainability flag are now scaling back, rebranding, or going quiet altogether.

What is really going on here and what does it mean for the future of corporate responsibility? From fragile market incentives to internal corporate power struggles, we unpack why the political backlash matters, what it tells us about deeper systemic issues, and how business leaders can respond with clarity and courage.

Sustainability’s shifting landscape: a fragmented global picture

Sustainability has become a battleground of competing ideologies. In the United States, ESG (a reporting framework that measures company performance on Environmental, Social and Governance metrics) has become deeply politicised. That’s if they know what it is at all. According to Ioannis Ioannou, Associate Professor of Strategy and Entrepreneurship at London Business School, if you asked someone on the street what ESG means, they’ll likely draw a blank – unless you’re on Wall Street.

Ioannou points to a sharp divergence in global attitudes. In the US, ESG is often entangled with debates over immigration, gender rights and other polarising issues. But in the European Union, the conversation is markedly different. Here, sustainability regulation is seen less as an ideological flashpoint and more as a practical concern – one tied to productivity and competitiveness. The Draghi report, for instance, frames new disclosure and due diligence rules as part of the EU’s broader economic challenge.

“In the EU, it's not a matter of inherently anti-sustainability or anti-ESG motives,” Ioannou explains. “Rather, it comes across as a matter of priorities.”

He cautions against a US-centric lens. Europe, after all, accounts for the lion’s share of global responsible investment – by some estimates, as much as 85%. And while the US has famously withdrawn from the Paris Agreement, other regions are stepping up. In Southeast Asia, sustainable development is viewed as the only viable path forward. With COP30 set to take place in Brazil, expectations are mounting that China may fill the leadership vacuum left by the US.

For business leaders, the message is clear: sustainability strategy must be regionally attuned. Just as geopolitics is fragmenting, so too is corporate sustainability. Where you operate, where you’re headquartered, and where your stakeholders are – all of these factors must shape your approach.

From backlash to recalibration: business is adapting

While the political winds around sustainability may shift, the underlying challenges remain constant and increasingly urgent. “Sustainability may go underground,” says Anna Lungley, Head of Sustainability Consulting at Fujitsu, “but it never goes away.”

Lungley, who has worked across the sustainability agenda for decades, notes that political cycles and leadership changes have long influenced how sustainability is prioritised. What’s different now, she argues, is the nature of the response. Organisations are moving from broad ESG narratives to targeted action – focusing on resilience, adaptation and tangible outcomes.

“This COP is not going to be about policy agreement,” she says. “It’s going to be about implementation. People are going to be looking at solutions and businesses will be there on the front line.”

Behind the scenes, the focus is shifting to where sustainability intersects with core business priorities. AI, for example, is emerging as a powerful tool for decarbonisation – delivering measurable impacts in energy efficiency, customer service and operational resilience. “Where those areas overlap, make them the priority,” Lungley says.

Ioannou agrees, adding that the environmental and social pressures facing businesses today are not just political – they’re existential. Overshooting planetary boundaries, rising inequality – these issues have intensified.

For companies, the challenge is structural. Governance frameworks often fail to integrate sustainability meaningfully. “The Chief Sustainability Officer has accountability but no authority,” Ioannou notes. When sustainability metrics are collected but not rewarded internally, they become external reporting exercises rather than drivers of change.

He calls this the “fallacy of parallel tracks” – the commercial and sustainability arms of a business operating in silos. The solution? Unified governance.

Aligning incentives: beyond the business case

How is sustainability to move from the margins to the mainstream? “People respond to incentives,” says Sergei Guriev, Professor of Economics and Dean of LBS. He points out that CEOs respond to shareholders because shareholders can fire them or reward them, which means aligning incentives is imperative for an ESG agenda.

In the US, this dynamic is becoming more explicit. Increasingly, CEOs are framing their fiduciary duty as a singular focus on shareholder value. This presents a challenge: unless long-term shareholder value is clearly aligned with ESG goals, sustainability will remain a secondary concern.

Anna Lungley encourages reframing the narrative: rather than seeing ESG as a distraction from business strategy, view it as business strategy: “ESG is a framework for integrating the environmental, social and governance factors into your core business strategy and decision-making because it is important to stakeholders.”

Those stakeholders include not only shareholders, but employees, consumers, insurers and regulators. And while short-termism remains a barrier, the long-term risks of unsustainable business models are becoming harder to ignore. Many companies are built on assumptions of unlimited, free resources, but that world no longer exists.

Investors are taking notice. ESG screening is now standard practice for many institutional investors, and companies without credible sustainability credentials risk exclusion. The business case is increasingly clear, as Unilever has demonstrated. Its sustainable product line, for example, consists of 74% of the company’s portfolio and profit, with 69% growth within the first eight years.

But for Ioannou, the conversation must go further. “There’s no such thing as a shareholder,” he says. A pension fund in the Nordics has a very different planning horizon or investment strategies than a hedge fund in New York.

This diversity of investor priorities complicates the incentive landscape and exposes the limits of relying solely on the business case. “Capitalism is not the same today as it was 10 years ago,” Ioannou argues. The system that delivered growth is now producing global challenges it can’t solve and is no longer fit for purpose. He calls for a shift in mindset: from sustainability as a compliance exercise to sustainability as a political economy project. We need businesses that are not only profitable, but also courageous enough to say: the system must change.

Governance and generational change: a turning point for ESG

Investor priorities are far from uniform. Long-term institutions like pension funds increasingly recognise that some business models are unsustainable over multi-decade horizons. This divergence is reshaping how companies approach ESG, prompting new thinking around governance that looks at long-term resilience as opposed to short-term profits.

Generational shifts are also accelerating change. “We see [sustainability consciousness] increasing every single generation,” says Anna Lungley. Demand-side activation could deliver up to 70% of the emissions reductions needed for net zero if societal shifts happen at the same time. Societal momentum is influencing markets, prompting brands to launch sustainable portfolios and unlocking new investment flows.

At London Climate Week, Lungley observed a growing ecosystem of collaboration – investors, climate-tech startups and corporates working together to drive systemic change. She claims we are at a tipping point where technology, consumer values and regulation are converging. It’s what John Elkington calls a ‘Green Swan’ moment, a “magical moment in time, when we can see those systemic changes to the system that we need.”

Internally, sustainability transformation requires cultural and structural alignment, like any other business transformation. You need a compelling narrative, the right skills, and aligned incentives. At Dentsu, Lungley explains, tying executive pay to ESG targets and linking £100 million in revolving credit to sustainability performance helped sharpen focus and accelerate action. Embedding sustainability into financial architecture, she argues, is no longer optional – it’s essential for long-term relevance.

Leadership in transition: navigating the sustainability shift

Business leaders now face a critical question: how to lead through uncertainty while staying anchored in long-term value creation.

For Ioannou, the answer begins with clarity. “As a leader, you ought to ground yourself in objective reality, not in political reality,” he advises. The environmental and social challenges we face are real and urgent. Once leaders accept this reality, they can begin to assess its implications. His second principle is ownership and accountability. “This is not someone else’s problem. This is everybody's problem.”

Lungley adds that “we need pragmatic and ambidextrous leadership.” The spotlight is on leaders who can focus on executing in the short-term without losing sight of long-term value. Transparency, she argues, is equally vital. Be honest about where you are in your journey and don’t lose sight of the systemic challenge – collaboration across stakeholders is the only way we’ll get the job done.

Leading with purpose in a fragmented landscape

Amidst the complexity, a clear message emerges: leadership matters. It requires recognising the diversity of stakeholders – from consumers and employees to investors and insurers – and building cultures that are resilient, transparent and collaborative. The landscape may be turbulent, but the direction of travel is clear. Leaders who invest in culture, credibility and collaboration today will be best positioned when the dust settles.

It also means identifying undervalued opportunities, investing in systemic change, and preparing for the inevitable return of sustainability to the centre of the agenda. This is not a moment for passive observation. It is a moment for deliberate action. The organisations that lead with purpose, align incentives with impact, and embrace the complexity of the ESG transition are the ones that will thrive in the era ahead.