The ESG Illusion: Reclaiming Impact Over Optics

 

The ESG Illusion: Reclaiming Impact Over Optics

High ESG scores dazzle. But beneath the glow, rivers are poisoned, workers exploited, and communities erased from the narrative. What began as a beacon for ethical business now risks becoming its mask. This article dismantles the illusion—revealing how ESG, when stripped of integrity, rewards disclosure over justice. If ESG is to guide the future, it must move beyond performance theater and toward lived accountability.

Introduction—ESG at a Crossroads

Environmental, Social, and Governance (ESG) criteria have been heralded as a seismic shift towards ethical business practices, aiming to redirect capital to foster sustainable development across industries. Initially conceived as a mechanism to hold companies accountable and drive societal benefits, ESG has evolved into a framework that, paradoxically, can often celebrate intent over actual impact. This paradoxical nature of ESG is particularly highlighted in recent literature, revealing a growing frustration that the current implementations of ESG are too focused on optics rather than genuine outcomes. Several studies underscore the idea that the promise of ESG is being undermined by the superficiality of corporate reporting and the manipulation of performance metrics to create pleasing narratives for investors while neglecting true sustainability efforts (Clementino & Perkins, 2020)(Chebbi & Ammer, 2022; .

One of the critical failings of the ESG model is its tendency to reward firms for their commitment to social responsibility without a rigorous verification of the actual impact. Researchers suggest that companies frequently adopt an "opportunity-seeking" stance, actively conforming to ESG ratings to gain a competitive advantage while sometimes engaging in practices that are fundamentally antithetical to ESG principles (Clementino & Perkins, 2020). This aligns with claims made by more recent studies illustrating that many corporations are effective at marketing their ESG credentials but less successful at implementing practices that engender significant, positive societal or environmental outcomes (Aboud & Diab, 2018; (Chebbi & Ammer, 2022; .

Moreover, the disparity between ESG disclosures and real-world impacts poses substantial ramifications for stakeholders, particularly investors. Studies suggest that retail investors often struggle with assessing the moral implications of corporate behaviors closely tied to ESG criteria, emphasizing that meaningful engagement with ESG issues substantially influences investment decisions (Nafisa et al., 2023). Therefore, there is a pressing need to overhaul the current ESG frameworks to prioritize genuine transparency and engage more directly with the communities affected by corporate actions (Chebbi & Ammer, 2022; .

1. The Mechanisms of ESG Ratings and Corporate Behavior

The correlation between how corporations respond to ESG ratings and their genuine practices illustrates a complicated landscape. It is often the case that companies manipulate ESG metrics to convey a false image of their sustainability efforts Zeng et al., 2025). This greenwashing poses significant challenges when assessing actual corporate performance against community expectations and environmental needs. For instance, certain companies, while scoring well on ESG metrics, have contributed to environmental degradation through practices that conflict with their publicly stated commitments (Aboud & Diab, 2018; Zeng et al., 2025).

Moreover, the plurality of ESG standards available can lead to inconsistencies and lack of comparability across firms, fueling confusion among consumers and investors alike (Lee & Rhee, 2023). Such discrepancies on what constitutes 'acceptable' behavior under various ESG metrics create room for companies to exploit the gaps and present themselves favorably without meaningful accountability Duan et al., 2023). Consequently, this has raised alarms within the academic community, pushing for a more coherent and standardized approach to ESG that better reflects the actual performance (Chebbi & Ammer, 2022; Piccioni et al., 2024).

2. ESG Disclosures: Validity and Impact on Firm Value

The literature points to diverging findings regarding the impact of ESG disclosures on firm value, demonstrating both their capacity to attract investment as well as criticisms regarding the authenticity of such disclosures (Aboud & Diab, 2018; Arvidsson & Dumay, 2021). Some studies affirm that positive ESG practices correlate strongly with enhanced firm value, as they can lead to lowered risks and increased attractiveness to socially conscious investors (Li & Chengshu, 2023). However, the quality, consistency, and validity of these ESG disclosures remain contested among scholars and practitioners alike (Aboud & Diab, 2018; Arvidsson & Dumay, 2021).

This creates a ferocious cycle where companies, incentivized to project a favorable ESG image, may prioritize superficial disclosures that meet stakeholder expectations but do not genuinely reflect their operational realities (Zhang & Liu, 2024). Such a dynamic calls for stricter scrutiny and regulation in the realm of ESG to prevent exploitative practices and reinforce accountability. Moreover, engaging stakeholders in discussing ESG criteria, in ways that prioritize community welfare and ecological integrity, could serve as a disruptive corrective to existing paradigms (Abdullah et al., 2024).

3. The Evolving Nature of Corporate Accountability Through ESG

As the field continues to evolve, the integration of ESG performance metrics into executive compensation packages is a prominent trend. Stakeholders suggest that tethering executive remuneration to ESG results can motivate corporate leadership to prioritize sustainable practices and stakeholder welfare over short-term profit maximization (Ahmed et al., 2024; Yin, 2024). This approach seeks to align corporate strategies with broader social and environmental goals in a manner that does not merely seek to 'tick boxes' but instead works towards substantial improvements in company practices. In doing so, it could address some of the criticism surrounding the current ESG frameworks (Ahmed et al., 2024; Ge et al., 2022).

Furthermore, the integration of technological advances, such as artificial intelligence and blockchain, offers significant potential for enhancing transparency in ESG-related data. Emerging frameworks propose utilizing these technologies to validate claims made by companies about their ESG initiatives, potentially leading to a more robust and trusted approach to corporate responsibility (Liu et al., 2024; Espahbodi et al., 2019). Such innovation signals an opportunity for the establishment of a more equitable relationship between corporations, investors, and communities, facilitating a shift from aspirational goals to actual accomplishments in the realm of ESG.

4. The Role of Stakeholders and Broader Society in Shaping ESG Outcomes

For ESG frameworks to reach their full potential, a reevaluation of how businesses engage with their stakeholders is paramount. Stakeholder theory emphasizes the necessity of involving all parts of society, encompassing not just shareholders but also employees, customers, and local communities, in the decision-making processes of corporations (Kostyuchenko et al., 2024). Studies show that robust stakeholder engagement is directly correlated to lasting corporate success and sustainability outcomes, as it encourages companies to address the needs and expectations of their wider environment authentically (Zhang & Liu, 2023; Cheng et al., 2022).

In practice, this can manifest through engaging local communities in corporate strategies, enriching the dialogue surrounding equity and sustainability, and ensuring that ESG priorities align closely with authentic societal needs rather than purely corporate interests or opportunism (Sætra, 2021; Yu et al., 2024). By firmly rooting ESG in community engagement and transparency, companies can break free from the prevailing illusion of compliance that currently pervades corporate practices.

5. Reforming the ESG Framework: A Path Forward

Reforming the ESG framework is not merely a desired goal; it is an urgent necessity if the sustainability movement is to thrive sustainably. This reform would entail a shift towards more rigorous standards that not only assess corporate behavior based on intent but critically evaluate the actual impact of such behavior on society and the environment (Wang, 2024). By strictly evaluating and ranking companies based on transparent impact assessments, rather than self-reported metrics, stakeholders can forge a path toward achieving the core goals of ESG (Kim & Li, 2021; Wang et al., 2024).

Moreover, collaboration across sectors will play a crucial role in actualizing impactful ESG outcomes. Governments, NGOs, and business leaders must work together to establish a unified approach that drives commitment and facilitates robust reporting standards that protect communities and the environment (Teng et al., 2021; Duan et al., 2023). This united effort has the potential to rewrite the narrative of ESG from one of superficial engagement to one of profound societal contribution and accountability.

In conclusion, while ESG holds considerable promise in reshaping corporate governance and pushing for a more sustainable and equitable future, the current practices heavily skewed towards optics must be addressed. This entails a reconstruction of ESG's foundational tenets to encompass authentic, measurable impacts and stakeholder-driven decision-making processes, fostering an era of transformative social responsibility.

 

Chapter 1 – The Illusion of Integrity: When Scores Conceal Harm

1.1 High Scores, Low Ethics – The Optics Trap

In the contemporary landscape of Environmental, Social, and Governance (ESG) ratings, it has become increasingly evident that high scores can be misleading indicators of actual corporate performance. Instead of reflecting true adherence to ethical practices, many organizations achieve impressive ESG ratings by prioritizing superficial compliance over substantive action. This phenomenon, often described as the "optics trap," allows companies—particularly those in high-polluting sectors—to present polished images by selectively disclosing favorable information or by showcasing diversity statements while continuing practices that are detrimental to environmental sustainability and social justice Wong et al. (2022).

Such distorted representations shield corporations from reputational damage that could arise from more profound ethical failings, ultimately exacerbating issues such as environmental degradation and social inequities. Research has shown that companies can amplify their ESG scores through strategic disclosures that prioritize appearance over impact—this not only erodes the credibility of ESG evaluations but also deepens systemic injustices related to labor practices, environmental compliance, and community displacement (Clementino & Perkins, 2020; (Escrig‐Olmedo et al., 2019). In many instances, the ethical implications of actions are overshadowed by the compelling narratives constructed around ESG achievements, allowing corporations to evade accountability while masquerading as socially conscious entities (Shobhwani & Lodha, 2023).

Therefore, if ESG frameworks are to serve their intended purpose, they must prioritize ethical considerations over mere optics. Transparency should outrank image cultivation; otherwise, the very instruments designed to promote accountability risk becoming tools of deception (Escrig‐Olmedo et al., 2019). The central question remains: how can stakeholders, including investors and consumers, discern genuine commitment to ESG principles from calculated posturing? This inquiry underscores the urgency for reform in how ESG ratings are assessed and communicated, pushing for a model that rewards authentic actions and real outcomes rather than polished reports.

1.2 The Metrics Mirage – Disclosure Without Accountability

The lack of uniformity in ESG rating methodologies contributes significantly to the current crisis of credibility regarding corporate disclosures. Rating agencies differ markedly in how they evaluate ESG performance, making it easier for companies to engage in selective data representation that favors their interests (Ruan & Liu, 2021). For example, a corporation may receive high praise for its emissions disclosures while simultaneously perpetuating practices like forced labor or contributing to deforestation in other regions (Narula et al., 2024).

This "metrics mirage" obscures systemic injustices, primarily when financial materiality takes precedence over ethical accountability. While corporations strive for higher ESG ratings to attract investment and public favor, the underlying issues often remain hidden from scrutiny. Studies indicate that without a standardized framework for assessment and severe repercussions for misleading disclosures, ESG ratings can mislead stakeholders concerning a firm's genuine commitments (Aich et al., 2021; Sundoro et al., 2025). The lack of independent verification further complicates matters, allowing firms to possibly furnish inflated data to sway perceptions while failing to enact fundamental changes in their operational practices (Wang, 2024).

If ESG is to realize its potential as a transformative force within corporate governance, it must transcend the current limitations imposed by a fragmented metrics system. By instituting stringent standards, transparent verification processes, and holding companies accountable for their performance against actual impacts—rather than self-reported data—the industry can promote a more authentic connection between ESG ratings and the realities faced by communities and the environment alike (Ye et al., 2023). Ultimately, addressing fundamental flaws in disclosure paradigms will empower stakeholders to make informed decisions and tangibly hold corporations accountable for their ESG commitments.

1.3 Beyond the Numbers – Double Materiality and Ethical Depth

A robust solution to the current issues within ESG reporting lies in the adoption of the concept of double materiality. This approach evaluates not only how environmental and social risks influence financial performance but also how corporate activities impact societal inequities and ecological systems (Tan et al., 2025). Specifically, organizations should be assessed not solely on how diversity is represented in their workforce but also on the inclusivity of their practices and decision-making processes. Additionally, environmental impact assessments should extend beyond a corporation’s headquarters to include the practices of outsourced suppliers (Li et al., 2022).

Double materiality addresses the limitations inherent in traditional ESG evaluations by recognizing the interconnectedness of financial performance and broader societal and environmental implications. It emphasizes the necessity for companies to engage with stakeholders—employees, local communities, and advocacy groups—whose lives and environments are directly affected by corporate operations (Teng et al., 2021). By incorporating feedback mechanisms to understand the perspectives of impacted groups, organizations can better align their practices with the aspirations of sustainable development and social equity.

Implementing this frame of reference demands a transformation in corporate culture, shifting from a narrow focus on financial success to a more comprehensive appreciation of societal wealth. Real reform is contingent upon listening to the voices of workers and the communities they inhabit, thereby fostering genuine accountability in corporate practices that resonate with the original aspirations for ESG (Feng et al., 2022). The challenge remains: how to catapult the discussion of ESG beyond mere compliance and into deeply rooted ethical commitments that yield meaningful societal benefits.

1.4 Case Spotlight & Reflection – ESG Failure in Practice

Consider a prominent global oil company, which might receive an "AA" ESG score while simultaneously engaging in lobbying efforts against climate policy and violating Indigenous land rights. This contradiction exemplifies the discrepancy in how ESG ratings are often attributed based on self-reported disclosures rather than accountable outcomes. The focus placed on how risks are disclosed can overshadow the urgent necessity for tangible risk reduction measures to protect both natural environments and social constituencies (Indriani, 2024).

The initial inception of ESG was meant to align corporate practices with social justice imperatives. However, as it stands, many firms take advantage of the ease of crafting self-congratulatory reports that reflect a priority on perception rather than action. Consequently, lack of integrity in reporting diminishes the spirit of accountability that ESG aims to embody. Until there is a decisive movement towards fortifying integrity—prioritizing authentic ethical action over mere appearances—ESG is likely to remain a diluted construct, failing to realize its transformative potential.

This chapter serves to underscore the path of reform that must take place within existing ESG frameworks. By establishing a foundation built on ethical integrity, standardized metrics, and genuine community engagement, stakeholders can reclaim the essential principles that ESG was originally designed to uphold. Moving forward, the focus must be on creating systemic changes that promote real, measurable impact rather than superficial accolades, bridging the gap between corporate responsibility and societal accountability.

 

Chapter 2 – From Compliance to Convenience: How ESG Lost Its Soul

2.1 The Birth of the Box-Ticking Culture

The evolution of Environmental, Social, and Governance (ESG) practices has often begun within organizations as a responsive measure focused primarily on regulatory compliance. Many companies find themselves in a phase where the primary aim of ESG initiatives is to produce reports that satisfy regulators rather than genuinely address stakeholder concerns. This box-ticking culture emerges when ESG becomes an isolated function, delegated mainly to communications or sustainability departments, and not fully integrated into the organization’s strategic framework Lo & Kwan (2017). As a result, initiatives are typically designed to merely pass audits, fostering a milieu where compliance is valued over systemic transformation.

This approach can result in superficial adherence, where companies emphasize meeting the minimum requirements of ESG standards without committing to deeper, meaningful changes that might actually benefit their communities or the environment. Such practices foster a corporate culture that is more about appearance than performance, undermining the original intent of ESG to drive ethical behavior and accountability (Feng et al., 2024). Studies indicate that this manner of engagement often fails to cultivate a transformative agenda in organizations, perpetuating an environment where real issues remain unaddressed (Ramirez et al., 2022; .

The consequences of this compliance-driven approach can be detrimental. Organizations that view ESG as merely a compliance exercise risk not only their reputations but their long-term viability as stakeholders increasingly demand transparency and genuine commitment to sustainability (Nafisa et al., 2023). The challenge ahead is for businesses to reframe ESG engagement beyond mere compliance, integrating these principles deeply into their core strategies and operations so that they can generate real impact rather than just appeasing auditors.

2.2 The Responsive Stage – Where Many Stop

In the landscape of ESG deployment, many organizations find themselves comfortably ensconced in the "responsive stage," where the goal is to do just enough to meet regulatory mandates without advancing their ESG agenda or critically assessing the implications of their practices. As regulations evolve—such as the European Union's Corporate Sustainability Reporting Directive (CSRD) and the SEC’s new proposed rules—it has become increasingly clear that a responsive approach now presents reputational and financial risks (Possebon et al., 2024). Stakeholders, particularly investors, are no longer satisfied with paperwork; they demand integrated governance practices that reflect authentic commitment to ESG principles.

The imposition of more stringent regulations has sparked a shift in expectations. Companies that remain stagnant in their efforts to fulfill ESG obligations now face risks that can significantly affect their business operations and market perceptions. Research has indicated that there is a correlation between high ESG performance and reduced costs of capital, which makes a compelling business case for companies to fully embrace robust ESG strategies instead of simply adhering to baselines for compliance (Ramirez et al., 2022; Teti et al., 2022). However, many companies still cling to outdated approaches, fearing that genuine integration will reveal operational inefficiencies or expose uncomfortable truths about their practices.

The integration of a more comprehensive ESG framework enables organizations to navigate these emerging regulations effectively and capitalize on changing market dynamics favoring transparency and genuine ethical commitment. In doing so, companies can mitigate financial risks while enhancing their reputations among increasingly conscientious consumers and investors (Aleknevičienė & Stralkutė, 2023). Ignoring these evolving demands risks relegating organizations to the sidelines in a growing global economy where sustainability and corporate responsibility are intertwined with business success.

2.3 Bureaucracy Over Purpose – When ESG Becomes Hollow

As organizations continue to prioritize compliance over purpose, ESG initiatives often devolve into bureaucratic theater. This phenomenon is characterized by a repetitive cycle of data collection, reporting processes, and obligatory board meetings, executed with little introspection or genuine impact on the company’s operations or culture (Zeng et al., 2025). When ESG practices are disconnected from leadership and decision-making processes, their potential to influence procurement, research and development, or operations is severely diminished.

The result is a hollow representation of corporate social responsibility, where reports are generated and filed with little meaningful analysis or commitment to the values they purport to represent (Ramirez et al., 2022; Liu et al., 2024). Firms may produce sustainability reports that are rich in information and data but lack the critical narratives that connect those figures to real-world impacts. Research has shown that without a genuine connection to the corporate culture, such reporting often becomes a mere formality rather than a chance for organizations to reflect on their practices and strive for improvement (Zhang et al., 2024).

Moreover, this compartmentalized approach tends to create a disconnect between ESG initiatives and core business strategies, rendering sustainability discussions peripheral rather than fundamental to decision-making processes. When ESG becomes symbolic rather than actionable, organizations risk alienating employees, customers, and investors who seek companies that embody integrity and purpose. To reverse this trend, there needs to be an intentional effort to integrate ESG considerations into all facets of corporate strategy (Feng et al., 2022). Doing so would reaffirm the importance of sustainability within the company culture and, as a consequence, invigorate the overall ambition of ESG with a renewed sense of meaningful purpose.

2.4 Section Reflection – The Rise and Dilution of ESG

The initial promise of ESG was to align capital with conscience, allowing consumers and investors alike to support companies that demonstrated genuine responsibility and commitment to environmental and social justice. However, despite the emergence of organizations boasting high ESG ratings, many have still been associated with striking abuses and environmental damage. The inquiries into the dissonance between reported scores and actual practices reveal that the current landscape of ESG metrics favors ease of compliance over ethical robustness (Leng et al., 2023; Lisin et al., 2022).

The comfort derived from having high scores and the associated accolades from rating agencies can often serve as a dangerous mask, obscuring the ethical violations and harmful practices being overlooked. Without tying ESG performance to meaningful impact and systematic integration across all corporate arms, ESG risks diluting its original mission, which set the stage for authentic accountability and socially responsible growth (Markopoulos et al., 2023; Halbritter & Dorfleitner, 2015).

Ultimately, organizations must shift from a mindset of compliance to one of integration, creating a cultural and operational embedding of ESG principles. This transition won't only necessitate a reevaluation of how ESG is perceived but will also require a cogent effort to reassess how it is implemented. Reflecting on the core values of ESG can guide stakeholders back to the foundation of aligning business objectives with societal values, emphasizing the ethical imperatives over mere numerical scores. Only then can ESG regain its integrity, reflecting a commitment to impact rather than optics alone.

 

Chapter 3 – The Paradox of ESG Success

3.1 When High Scores Hide Low Ethics

The current state of Environmental, Social, and Governance (ESG) ratings reveals an alarming dilemma: firms that achieve high ratings, such as "AA," may simultaneously engage in unethical practices like funding deforestation, profiting from exploitative labor, or evading taxes. In this context, ESG scoring allows corporations to prioritize strategic image management over genuine reform. The outcome is stark; while investment portfolios may gleam with green accolades, ecosystems may suffer significant degradation, and marginalized communities face undue hardships Cheung & Lai (2023)Possebon et al., 2024).

Numerous studies illustrate that the superficial allure of high ESG scores often conceals deeper ethical failings within organizations. Companies have manipulated reporting structures to reflect favorable metrics while continuing harmful operations behind closed doors (Clementino & Perkins, 2020; Şahin et al., 2022). This phenomenon leads to a critical paradox in ESG implementation. The illusion of accountability perpetuated by inflated ESG ratings enables harmful corporate behaviors to flourish under the radar, overshadowing actual contributions to sustainable practices (Annisa & Hartanti, 2021).

As this paradox deepens, the reputation of ESG as a catalyst for change is jeopardized. Stakeholders may feel misled, as the purported benchmarks of ethical corporate behavior fail to translate into meaningful action. For ESG to reclaim its integrity and true purpose, it must be recast as a tool designed for genuine accountability rather than as a commodified success that distracts from pressing realities of corporate misconduct (Niblock, 2024; (Dzyuma-Zaremba, 2023).

3.2 The Black Box of ESG Ratings

The opacity of ESG criteria and the presence of bias in ratings render ESG scores unreliable metrics for assessing corporate responsibility. The inconsistencies in rating methodologies mean that companies adept at crafting compelling narratives can often outscore organizations that are instigating genuine change (Назарова & Лаврова, 2022; Shobhwani & Lodha, 2024). This reliance on self-reported, unverified data not only detaches ESG assessments from actual community experiences but also favors companies that prioritize superficial compliance over substantive action (Dzyuma-Zaremba, 2023).

The implications of this black box approach to ESG ratings are profound. As companies skillfully navigate the rating landscape by providing selective disclosures that favor their images, the disconnect between ESG performance measurement and real-world impact widens. This dynamic highlights how ESG systems disproportionately protect the interests of those with the resources to engage in effective public relations while sidelining the needs of stakeholders who deserve accountability (Halid et al., 2023; Liu et al., 2023).

To break free from the constraints of this black box, robust frameworks must be developed that provide transparency in rating methodologies and establish standardized criteria for assessing ESG efforts across sectors. Such reforms would enable stakeholders to access credible and comparative information, empowering them to make informed decisions based on both ethical practices and genuine corporate behavior (Indriani, 2024).

3.3 Metrics That Miss the Moment

Many existing ESG frameworks prioritize criteria that are simple to quantify—such as policy presence and disclosure frequency—at the expense of assessing fundamental justice, resilience, and the tangible harms inflicted on communities and ecosystems (Madison & Schiehll, 2021; Gidla & Kumar, 2024). As climate crises intensify and social inequalities expand, the disconnect between ESG ratings and the realities unfolding outside of boardrooms becomes increasingly pronounced. The current system rewards compliance without necessarily holding companies accountable for the real consequences of their actions (Gao et al., 2022).

The predominance of such metrics renders ESG ratings not only insufficient but also potentially irrelevant. Critics argue that the focus on easily quantifiable data fails to capture the intricacies and intersections of environmental and social justice, leaving pressing issues unaddressed (Wei, 2025). This void in meaningful evaluation reveals a systemic failure within ESG frameworks, where superficial measurements can yield distorted perceptions of corporate success and lead to misguided investment decisions (Fang, 2023).

To counteract this trend, ESG assessments must evolve to encompass comprehensive, multi-dimensional indicators that address actual impacts on society and the environment. This evolution should strive for a broader understanding of resilience and justice within corporate practices, ensuring companies are evaluated not solely on what they report but on their substantive commitments to do good (Shaddady & Alnori, 2024).

3.4 The Risks of Standing Still

The dangers of stagnation in the ESG space cannot be overstated; remaining complacent in an ever-evolving landscape invites significant risks. Companies that fail to adapt to shifting societal expectations and regulatory requirements face a multitude of consequences, including legal penalties, exclusion from capital markets, and backlash from increasingly discerning consumers (Ehlers et al., 2023). The reality is that ESG is no longer simply a matter of compliance but one of survival in a market environment that values genuine ethical behavior and proactive sustainability measures.

As regulatory frameworks tighten and investors grow more sophisticated, the future of ESG will belong to those organizations that transition from mere symbolic compliance to substantive action. High-performing companies can no longer afford to rest on their laurels; instead, they must actively seek ways to integrate ESG considerations into their core strategies, operations, and cultures (Keeley et al., 2022). Those that continue to prioritize optics over action risk not only their reputations but also the stability of their business models in a market that scrutinizes ethical commitments increasingly (Wedajo et al., 2023).

In conclusion, the paradox of ESG success lies in the disheartening reality that high ratings can mask deep ethical failings. To realign ESG with its foundational goals, significant reforms are necessary in measurement and accountability frameworks. Until substantive action is intertwined with ESG scores, the potential for genuine progress will remain stifled, and the ultimate goal of promoting sustainable and equitable practices will remain elusive.

 

Chapter 4 – The Missing Stakeholders: Who ESG Leaves Out

4.1 ESG Without the People

The existing framework of Environmental, Social, and Governance (ESG) practices frequently overlooks the voices of those most affected by corporate actions—namely, workers, farmers, and Indigenous peoples. The current ESG model skews heavily toward shareholder risk assessment, often sidelining social rights and the lived experiences of individuals and communities impacted by corporate decisions Aliani et al. (2024). The omission of these critical stakeholders from both the design and evaluation processes of ESG frameworks perpetuates a narrative that prioritizes profits over people and environmental health.

Incorporating the perspectives and lived realities of these communities into ESG frameworks is essential for addressing systemic injustices and ensuring that corporate actions align with ethical standards rather than mere regulatory compliance (Cohen & Zhu, 2024). This requires a fundamental shift in how ESG is understood and implemented—moving it from a distant concept focused mainly on financial returns to a deeply rooted commitment to societal welfare and environmental responsibility (Wang et al., 2023). As various studies highlight, when stakeholders are actively engaged in shaping ESG policies, the outcomes are far more reflective of the actual impacts on society and the environment (Arayssi et al., 2020).

It is crucial for ESG initiatives to center the voices of those parties most affected by corporate practices, thereby creating inclusive systems that reflect diverse interests. Failing to do so undermines the legitimacy of ESG efforts and risks perpetuating harm to vulnerable groups, failing to deliver on the promises of sustainability and social justice encapsulated in the original ESG ethos (Kölbel et al., 2020).

4.2 From Investor Logic to Impact Logic

Currently, ESG practices reflect a predominant "investor logic," focusing on quantifying risks and minimizing liabilities while often sidelining the broader impacts of corporate actions on communities and the environment. This perspective prioritizes financial returns linked to risk assessment, neglecting the tangible social and environmental consequences caused by corporate operations (Escrig‐Olmedo et al., 2019). What is critically needed is a paradigm shift towards "impact logic"—a framework that emphasizes measuring lived outcomes, prioritizing restorative practices, and redefining success through the lens of justice (Reber et al., 2021).

By adopting impact logic, ESG ratings can evolve beyond mere reflections of compliance and financial risk. They can begin to address the genuine ramifications of corporate actions on societal welfare and ecological health. Studies assert that when organizations embrace this orientation, they become better positioned not only to fulfill ethical obligations but also to enhance their competitive advantage in a marketplace increasingly demanding corporate social responsibility (Bruno & Henisz, 2024; Chimbi & Jita, 2021).

Reimagining ESG through the lens of impact can help ensure that it serves the public good rather than solely private interests. This requires stakeholders—especially investors and corporate leaders—to rethink their definitions of value and success to include active contributions toward social equity, environmental stewardship, and community resilience (Buniamin & Ahmad, 2018).

4.3 The ESG Data Divide: Whose Metrics Matter?

The predominant lack of representation in ESG narratives typically sidelines communities impacted by extractive practices, as most data within ESG frameworks is company-controlled, rarely verified, and often unaudited (Wang et al., 2022). This data divide exacerbates the disconnect between what corporations report and the experiences of those directly affected by their practices. When data is largely produced and controlled by companies for self-affirmative narratives, it fails to provide a full, comprehensive account of the actual impacts on local communities and the environment (Wang et al., 2023).

For ESG frameworks to receive credibility, it is imperative to incorporate participatory metrics shaped by the communities directly impacted by business practices (Tan et al., 2024). This would involve integrating local data, validating information through third-party assessments, and ensuring that the communities involved have a say in how their experiences influence corporate ESG strategies (Chevrollier et al., 2020; Ge, 2024). Such reforms could radically enhance the authenticity of ESG evaluations, making them more reflective of the realities on the ground rather than corporate self-promotion.

Moreover, democratizing ESG data ensures inclusivity in decision-making processes within organizations. By elevating the voices of marginalized communities in the creation of ESG metrics, companies can align their business practices with broader social and environmental goals—a necessity to mitigate risks and build sustainable futures for both the organization and the populations it affects (Baines & Hager, 2022).

4.4 Why Moving Forward Matters Now

Transitioning to an inclusive ESG framework is not merely an ethical obligation but also a strategic imperative for organizations seeking resilience and sustainable growth. Companies that prioritize stakeholder engagement and center their strategies around inclusive ESG practices often outperform those that remain stagnant, potentially facing increasing legal penalties, consumer backlash, and capital exclusion in the absence of responsive action (Bachtiar & Arief, 2024; Aureli et al., 2020).

As organizations integrate stakeholder voices into their strategies, they stand to attract purpose-driven talent, cultivate higher levels of employee satisfaction, and enhance their overall reputation in the market (Cicchiello et al., 2022; Horobeț et al., 2024). Research consistently demonstrates that companies committed to robust ESG practices experience better financial performance and longer-term viability in the face of challenges resulting from rapidly evolving market conditions (Adams & Abhayawansa, 2022).

Thus, addressing the missing stakeholders within the ESG conversation is not only a matter of social justice but also a vital strategy for amplifying organizational success in an increasingly conscientious marketplace. Companies that deliver on their commitments to engage stakeholders substantively will be well-positioned to navigate the complex demands of future global business challenges (Liu & Xie, 2024).

In conclusion, prioritizing stakeholder inclusion in ESG frameworks is essential to reclaiming the integrity and purpose that ESG initially promised. Enabling communities to have a voice in shaping ESG narratives and metrics ensures that corporate practices align more closely with societal needs and ecological realities, fostering a sustainable future for all parties involved.

 

Chapter 5 – Reclaiming ESG: Truth, Justice, and Transformation

5.1 What Comes After ‘Responsive’?

The journey of Environmental, Social, and Governance (ESG) practices is continuously evolving, with many organizations transitioning from basic compliance to a more integrated approach. A notable sign of ESG maturity is the emergence of leadership that demands better quality data, promotes cross-departmental collaboration, and integrates ESG considerations into enterprise risk models. This progression reflects a fundamental shift; moving forward means linking ESG to a company's mission rather than merely focusing on profit margins Ramadhan et al. (2023).

Companies that are embracing these signs of maturity illustrate how ESG can be leveraged as a transformative force, driving meaningful change rather than serving as a checklist of compliance measures. By embedding ESG into their core strategies, organizations not only fulfill ethical obligations but also open pathways for innovation, enhanced performance, and improved stakeholder engagement (Atif et al., 2022). The necessity to connect the essence of ESG with corporate missions emphasizes that sustainable growth can align with long-term profitability, ensuring ESG becomes a fundamental aspect of business operations.

As firms recognize the interconnectedness of ESG metrics and broader organizational goals, they establish frameworks that promote holistic assessments of risk and opportunity. This integrated approach not only furthers compliance but fortifies a corporation's commitment to authentic social and environmental stewardship, positioning them favorably in an increasingly conscious market (Mathath et al., 2024). In doing so, businesses can cultivate resilience in the face of challenges, align operational strategies with stakeholder expectations, and execute actions that contribute to a sustainable future for all.

5.2 Redesigning ESG from the Ground Up

A meaningful redesign of ESG frameworks requires bold shifts not merely in metrics but in organizations' underlying philosophies (Ivașcu et al., 2022; Alkatheeri et al., 2023). Achieving transformative ESG practices means aligning them with global standards, actively listening to stakeholders, and embedding ESG accountability across governance and operations. It's essential to recognize that this is not about creating more metrics but about developing meaningful ones that genuinely reflect the impact of corporate activities (Jhunior et al., 2025).

Organizations must establish transparent and reliable criteria for measuring ESG performance while being anchored in community engagement and local realities. This necessitates a departure from the top-down, purely quantitative approaches that have often characterized ESG evaluations. Instead, companies must seek to co-create metrics with affected communities, ensuring that their assessments encompass a plethora of lived experiences and cultural contexts (Lichtenthaler, 2023; Sari et al., 2024). This collaborative approach can enhance mutual trust between corporations and stakeholders, fostering an environment in which ESG goals are more effectively pursued.

Additionally, by redesigning ESG frameworks to include a diverse range of perspectives, companies can cultivate a greater awareness of systemic inequalities and environmental challenges they may contribute to, thus fostering a culture of accountability and continuous improvement. In doing so, organizations can enhance strategic foresight, enabling them to anticipate stakeholder concerns and actively engage in addressing societal and environmental issues (Iamandi et al., 2019).

5.3 Reclaiming Community Oversight in ESG

For ESG frameworks to gain credibility and relevancy, there is an urgent need to establish mechanisms for community oversight that become standard practice. Citizen audits, participatory scorecards, and frontline validation must be integrated into the ESG evaluation processes to ensure that corporations are held accountable not only to their shareholders but also to the very communities that are affected by their operations (Habermann, 2021; Solaimani, 2024).

ESG without community feedback is inherently incomplete; effective governance demands a justice-oriented approach where communities affected by corporate actions co-author metrics and assessments that capture their realities. In their absence, corporate narratives risk becoming detached from actual impacts, undermining the purpose of ESG efforts (Ragazou et al., 2022).

Furthermore, engaging communities in the ESG evaluation process allows for the integration of nuanced insights that routine reporting often omits. Research has shown that this collaborative approach can enhance the accuracy and relevance of ESG assessments while reinforcing corporate commitments to social responsibility (Tan et al., 2024). By centering community voices, organizations can foster greater transparency, improve stakeholder trust, and ultimately align their ESG initiatives with broader societal goals.

5.4 Signals You’re Ready to Advance

Organizations that demonstrate readiness to advance their ESG practices exhibit several key characteristics: regular inclusion of ESG discussions in strategic meetings, the emergence of informal ESG initiatives, and a growing acknowledgment among leaders of ESG as a reputational and ethical imperative. Now is indeed the time for action (Saini et al., 2021).

When ESG topics permeate strategic conversations, they signal an organizational commitment to proactively engage with issues that could affect enterprise performance and stakeholder relations. Research indicates that organizations prioritizing ESG are often better positioned to navigate regulatory pressures, consumer demands, and emerging trends in sustainability (Moreira et al., 2023).

Adopting a mindset oriented toward active ESG advancement not only cultivates a culture of responsibility but also unlocks opportunities for innovation and resilience. Forward-thinking organizations are ready to break free from outdated frameworks, embracing a transformative approach that elevates the role of ESG in their strategic endeavors and fosters deeper engagement with all stakeholders integral to their missions (Atif & Ali, 2021; Makhdalena et al., 2023).

In summary, reclaiming and revitalizing ESG requires a commitment to truth, justice, and transformation. By centering stakeholder voices, fostering impactful measures, and integrating community oversight, organizations can develop ESG practices that resonate with their foundational goals and drive sustainable change across society and the environment.

 

6. Conclusion: From Illusion to Integrity

6.1 The Score Is Not the Story

In evaluating Environmental, Social, and Governance (ESG) practices, it is crucial to acknowledge that a high score does not inherently equate to high standards of ethical and sustainable behavior. Many companies have successfully achieved favorable ESG ratings while concealing harmful practices behind polished reports, leading to the notion that the score is not the definitive narrative Triwacananingrum et al. (2024)Feng et al., 2024). For ESG to be genuinely transformative, it must emphasize consequences over comfort and prioritize truths that reveal the actual impact of corporate actions on society and the environment (Gangi et al., 2024).

This suggests a critical reevaluation of how ESG performance is reported and assessed. Stakeholders must demand transparency and authenticity, ensuring that ratings reflect real-world ethical practices rather than merely allowing corporations to engage in greenwashing (Chen, 2025). Ultimately, the narrative surrounding ESG must shift from a focus on what looks good to what does good, anchoring the evaluation in tangible outcomes that contribute to social and environmental justice rather than superficial metrics or appearances (Юй, 2025).

6.2 ESG Isn’t a Destination. It’s a Discipline

A fundamental truth recognized by sustainable companies is that ESG is not a static endpoint but a continuous discipline that requires ongoing reflection, restructuring, and recommitment to genuine improvement (Ahuja, 2024). To thrive in today's rapidly changing socio-economic landscape, organizations must understand the dynamic nature of ESG practices, embracing it as an iterative process rather than a one-time initiative (Gong, 2024).

Effective integration of ESG into business operations demands a proactive mindset, where companies regularly assess their impact and adapt strategies accordingly. By treating ESG as a discipline informed by stakeholder feedback and community engagement, organizations can foster a culture of accountability and integrity that resonates with broader societal values (Fang, 2023). This understanding positions ESG efforts not only as a compliance requirement but as a core component of corporate governance that drives sustained value creation for all stakeholders (Yurieva & Shevchenko, 2024).

6.3 From Policy to Performance

For ESG frameworks to evolve effectively, the focus must shift from policies existing solely on paper to actual performance in practice. As highlighted in various studies, trust cannot be manufactured— it must be earned through consistent action and accountability (Zatonatska et al., 2024; Bell & Patt, 2022). Companies that anchor their ESG commitments in demonstrable performance metrics, reflected in their day-to-day operations and decision-making processes, establish a robust foundation for stakeholder trust and engagement.

This necessitates a commitment to transparency and a willingness to participate in participatory frameworks where community feedback informs corporate strategies (Chen, 2024). In doing so, organizations can bridge the gap between policy declarations and actual behavior, ensuring that their ESG efforts resonate with stakeholders and authentically contribute to societal good. As the ESG landscape continues to evolve, it is imperative for businesses to integrate these principles dynamically, adapting to emerging trends and heightened expectations from investors and consumers alike (Li & Jung, 2023; Dey, 2025).

Ultimately, reclaiming ESG involves fostering a culture of integrity that values truth and accountability above all. By adhering to these principles, organizations can transform their impact on the environment and society, paving the way for a more sustainable and ethically grounded future.

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Beyond ESG From Compliance to Conscience in a Fragmented World

 

Beyond ESG From Compliance to Conscience in a Fragmented World

 

What if the frameworks meant to protect our planet and people were actually failing the very communities they promise to serve? Behind glossy ESG reports lie untold stories of exclusion, greenwashing, and systemic blind spots. This is not just a critique—it’s a call to reimagine ESG as a living contract for justice, regeneration, and shared power.

1. Chapter Title: When ESG Meets Its Limits

1.1      Subchapter 1: The Reckoning of a Framework Once Promised

Environmental, Social, and Governance (ESG)—once heralded as the triumphant banner of corporate responsibility—now faces a moment of reckoning. Originally envisioned as a mechanism to integrate ethical principles into capitalism, ESG has drawn billions in investment and achieved widespread boardroom adoption. However, this surge has not translated into the transformation it promised. Climate disasters persist, inequality continues to deepen, and corporate greenwashing has grown more sophisticated (Chen et al., 2023).

The disillusionment is not limited to policy analysts or ESG critics. It is rising from the very communities ESG was designed to uplift. Despite its proliferation, ESG remains insufficient in addressing real-world crises. Instead of evolving into a unifying force, it often serves as a reputational shield for companies prioritizing investor comfort over public accountability. This chapter invites a fundamental reconsideration: if ESG is to matter in tomorrow's world, it must transcend compliance and become principle-driven.

The article series "Beyond ESG: From Compliance to Conscience in a Fragmented World" proposes a new journey, one that merges the structural guidance of ESG maturity models with the lived realities of those marginalized by the current system. These two currents, when intertwined, expose the cracks in ESG's implementation and illuminate a path toward deeper responsibility.

 

1.2      Subchapter 2: The Drift from Principles to Performance Optics

ESG's origins lie in its response to ethical failures—oil spills, labour abuse, environmental degradation, and financial corruption. It once embodied the aspiration to create a better alignment between capital and conscience (Benhard, 2024). Early adopters embraced ESG not as a trend but as a transformative lever for corporate reform.

However, over time, the integrity of ESG has faltered. As capital markets adopted its framework, ESG evolved into a tool for value extraction. Disclosures and scorecards became more about brand polish than genuine progress. ESG metrics are now often used for marketing strategies rather than catalyzing systemic change. According to Воронцова et al. (2023), many corporations report on ESG to appease stakeholders while disregarding community consent or environmental realities.

This superficial adoption masks a serious issue: a widening gap between ESG ratings and real-world impact. Compliance checkboxes have overtaken ethical imperatives. What remains is a framework at risk of losing its soul unless it is reclaimed, restructured, and reimagined to deliver equity-centred, transparent, and accountable change.

 

1.3      Subchapter 3: Reclaiming ESG Through Inclusion and Moral Urgency

The disconnect between ESG advocates and affected communities grows more visible each day. Reports from Indigenous territories facing displacement by "green" energy projects and from factory workers subjected to poor conditions despite lofty ESG claims—demonstrate the urgency of integrating local truths into global frameworks. These communities are not rejecting ESG's ideals; they are demanding its fulfilment.

Reforming ESG requires us to move beyond rating systems and back into the reality of lived experience. We must pair technical ESG structures with community voices and civic ethics. As Wang and Xia (2024) argue, corporate accountability should shift toward measuring tangible, justice-orientated outcomes rather than merely focusing on disclosures. True transformation demands prioritizing transparency, fostering long-term resilience, and restoring the moral compass of governance.

Beyond ESG: From Compliance to Conscience in a Fragmented World is not a call to dismantle ES but to redeem it. To do so, we must abandon the illusion that metrics alone suffice. A reimagined ESG must champion participatory governance, environmental justice, and stakeholder-led innovation. As the planet faces compounding crises, the cost of ignoring this transformation grows heavier.

 

1.4      Conclusion: ESG Is Not Dead, But It Must Be Reborn

The future of ESG does not lie in its abandonment but in its evolution. If it remains a corporate branding tool, ESG will fail the very people it claims to support. However, if grounded in justice, accountability, and inclusion, ESG can still become a powerful instrument for planetary and social stewardship. The stakes are too high for inaction. The time to move from metrics to meaning is now.

 

2        Chapter 2: The ESG Illusion—Why Good Scores Can Still Harm the Planet

 

2.1      Subchapter 1: High Scores, Low Integrity—The Optics Trap of ESG

The illusion of Environmental, Social, and Governance (ESG) credibility is unravelling before our eyes. Intended initially to reward ethical conduct and responsible governance, ESG metrics have, in many cases, morphed into a smokescreen for superficial compliance. Polluting industries, including fossil fuel corporations, continue to secure impressive ESG ratings not for their sustainable operations but for their skilful disclosure, savvy public relations, and selective voluntary pledges (Yang & Han, 2023).

Beneath polished sustainability reports lie harsh truths that communities suffer from contaminated water, polluted air, and irreversible ecological destruction. This contradiction exposes a critical flaw: high scores often mask low integrity. When ESG is reduced to optics rather than outcomes, it not only loses its moral compass but also erodes public trust. ESG, at its core, should measure impact, not intention.

ESG ratings frequently overlook detrimental supply chain practices and marginalize vulnerable communities. This misalignment has prompted an increasing number of calls to shift the ESG focus away from investor assurance and toward meaningful, measurable outcomes that prioritize environmental justice and social equity (Jin & Huang, 2023).

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2.2      Subchapter 2: The Metrics Mirage—When Disclosure Drowns Accountability

The current ESG scoring landscape suffers from what scholars term the "metrics mirage", a distortion where ratings become tools for perception management rather than objective indicators of responsible behaviour. Due to inconsistent rating methodologies, companies often receive vastly different ESG scores depending on the rating agency, thus undermining the integrity of ESG assessments (Hughes et al., 2021; Clark & Dixon, 2023).

This lack of standardization enables companies to curate selective visibility. For instance, a global fast-fashion brand might earn favourable ratings for its water-efficiency campaigns while ignoring microplastic pollution and labour rights violations that are deeply embedded in its supply chain. These inconsistencies enable corporations to prioritize storytelling over substance, garnering accolades for their brand identity while overlooking systemic harm (Dwibedi et al., 2024).

Significant violations such as forced labour, environmental degradation, and Indigenous land dispossession often remain invisible unless amplified by media or shareholder activism. ESG's overreliance on financial materiality further narrows its lens, evaluating social and environmental issues only if they endanger profit (Tilba, 2022). This inherently flawed logic treats justice as optional rather than integral.

 

2.3      Subchapter 3: Beyond the Numbers – Towards Double Materiality and Ethical Depth

To reclaim credibility, ESG frameworks must adopt a double materiality approach, which measures both how environmental and social issues affect financial performance and how a corporation's actions impact the environment and society (Dwibedi et al., 2024). This shift would reframe ESG from a branding device into a genuine ethical evaluation tool.

Under this lens, a garment manufacturer would no longer be assessed solely on emissions from its headquarters but also on the toxic runoff from its offshore suppliers. ESG would then extend beyond diversity statistics and green pledges, encompassing worker rights, community protection, and historical redress for marginalized populations (Tilba, 2022).

Such transformation demands not only stronger metrics but also deeper engagement with stakeholders. Incorporating empirical evidence, localized data, and community voices will enrich ESG evaluations and foster greater accountability. As Hou et al. (2024) and Horan et al. (2022) argue, comprehensive ESG assessments must reflect systemic consequences and multi-perspective inputs—not just investor interests.

Moving forward, ESG frameworks must move beyond superficial disclosures and adopt performance-based ethics grounded in justice. Transparency, integrity, and accountability—not branding—must become the pillars of ESG. Only then can ESG evolve from illusion to impact.

 

2.4      Conclusion: From Illusion to Integrity—Reimagining ESG in Practice

The credibility crisis of ESG demands urgent reform. If ESG scores continue to prioritize disclosures over real-world accountability, they risk becoming complicit in sustaining harmful systems under the guise of responsibility. True ESG must shift its emphasis from scorekeeping to storytelling with substance and from investor satisfaction to societal transformation.

Adopting a double materiality approach, standardizing rating methodologies, and integrating marginalized voices are not just ethical imperatives; they are structural necessities. ESG can still fulfil its founding promise, but only if it sheds its illusion and embraces integrity.

 

3        Chapter 3: Inclusion or Illusion? Who Gets to Shape ESG Narratives

 

3.1      Subchapter 1: Narrative Capture and the Politics of Visibility

The question of inclusion or illusion lies at the heart of today's ESG discourse. While ESG frameworks claim to uphold social responsibility, the individuals and communities most impacted by corporate activities, such as Indigenous populations, informal workers, and marginalized groups in the Global South, are often excluded from shaping the very narratives that define ESG success. This exclusion renders ESG a one-sided narrative, prioritizing the interests of investors and institutions over those who bear the consequences of environmental and social degradation (Schroeder & González, 2019).

The dominance of elite financial centres in shaping ESG narratives has led to a form of narrative capture, where curated stories displace authentic, lived experiences. Indigenous resistance to land encroachment, women's leadership in informal economies, and the disruption of coastal communities by "green" infrastructure remain hidden beneath the surface of corporate reports. ESG progress is too often framed through selective visibility, promoting compliance and partnership announcements while masking labour exploitation or community displacement (Zhang, 2025).

This narrative imbalance raises questions not only about who benefits from ESG systems but also about whose voices are legitimized. Without disrupting this pattern, ESG risks become an exclusionary tool that reinforces the inequities it claims to resolve.

 

3.2      Subchapter 2: The Myth of Consent and the Limits of Participation

One of the most pressing flaws in current ESG practice is the misappropriation of consent. Community engagement, though presented in sustainability reports, often reduces to procedural box-ticking. Rather than securing genuine partnerships, corporations pursue "Free, Prior, and Informed Consent" (FPIC) as a bureaucratic hurdle. In many cases, consent is manufactured through selective consultations or misinformation, as seen in extractive projects in the Amazon Basin (Zhang, 2025).

This form of manufactured consent misrepresents ethical corporate behaviour and erodes trust. Communities are portrayed as collaborators in ESG processes even as they express discontent, lack decision-making power, or face intimidation. The gap between reported "engagement" and lived experience is both broad and damaging.

True inclusion demands more than brief consultations. It requires redistribution of power. Without ongoing dialogue and collaborative frameworks, ESG remains extractive and performative. As Kim et al. (2019) emphasize, sustained inclusion must reflect not only community presence but also their governance authority and knowledge systems.

This deficiency also reveals the inadequacy of a corporate-centric approach to ESG. The ethical legitimacy of sustainability frameworks rests on the degree to which they centre and empower those who live with the consequences rather than those who merely finance or report on them.

 

3.3      Subchapter 3: Community-Led ESG – Toward Shared Narratives and Equity

Amid the failures of tokenistic engagement, community-led ESG initiatives offer compelling alternatives. In Kenya, women-led solar cooperatives have revolutionized energy access while retaining control over distribution and pricing. In Canada, Indigenous forest management integrates traditional ecological knowledge with long-term sustainability strategies, challenging dominant paradigms of external environmental, social, and governance (ESG) evaluation (Schroeder & González, 2019).

These examples subvert the myth that ESG must be dictated from above. Instead, they show that authentic sustainability grows from the ground up. Local wisdom, contextual decision-making, and collaborative governance form the foundation of genuinely inclusive ESG models.

Redefining ESG thus requires a shift from extractive consultation to co-creation. Zhang (2025) advocates for reframing inclusion as a continuous process rather than a one-time check, emphasizing that engagement must reflect the lived realities of the affected communities. Trust-building, mutual accountability, and shared decision-making must become structural features of ESG governance.

As Zhu and Zhang (2023) assert, this reframing is not merely about diversity in representation. It is about changing the architecture of power. By elevating Indigenous rights, informal labour contributions, and women's leadership in climate action, ESG can transform into a framework of justice, not just compliance. Such a transformation calls for the relocalization of sustainability and the democratization of impact assessment.

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3.4      Conclusion: From Margins to Mandate—Reclaiming the Narrative Power of ESG

If ESG is to move from illusion to integrity, it must reclaim the narrative from institutional gatekeepers and centre those who have been historically marginalized and silenced. Effective ESG must not only invite communities to the table but also allow them to co-author the agenda. This reimagined framework must reject superficial indicators and instead prioritize ongoing participation, ethical accountability, and shared stewardship.

As we navigate a fragmented world, the legitimacy of ESG will be measured not by its rhetoric but by its relationships. Real inclusion means building systems where the marginalized are no longer afterthoughts but architects of the future.

 

4        Chapter 4: Broken Governance – Why the 'G' Is the Weakest Link

 

4.1      Subchapter 1: Governance in Name, Not Practice

Governance The "G" in ESG was intended to safeguard transparency, accountability, and integrity. However, in practice, governance often proves to be the most compromised pillar of ESG. Many ESG committees serve as symbolic artefacts, formed more to satisfy compliance requirements than to drive meaningful reform. Audits are often superficial and more ceremonial than corrective. Boards are dominated by insiders, while those most affected – workers, local communities, and civil society – are rarely consulted or represented in key decisions (Jin & Wu, 2024).

This hollow structure results in a self-regulated environment, shielded mainly from external scrutiny. Whistleblower protections remain weak, and shareholder votes on sustainability are typically non-binding. These governance gaps reduce ESG to a performative exercise, where ethics are proclaimed in policy but evaded in practice.

Without enforceable legal standards, independent oversight, and public participation, governance collapses into a public relations tool. As Li et al. (2022) argue, governance must be grounded not only in formal codes but in mechanisms that ensure accountability and justice. ESG cannot thrive in shadows. It must be bound by law, empowered by participation, and accountable to the broader public—not just shareholders.

 

4.2      Subchapter 2: Exclusion by Design – Who Governs the Governance?

A deeper flaw in ESG governance lies in its elite-centric architecture. Corporate boards tasked with setting ESG direction are overwhelmingly composed of individuals from executive, financial, or consultancy backgrounds. While such expertise adds strategic value, it often lacks a lived connection to the environmental or social challenges ESG claims to address. Rarely are Indigenous leaders, grassroots activists, or union voices represented in governance structures (Jin & Wu, 2024).

This homogeneity leads to governance blind spots. Policies are shaped in high-rise boardrooms with minimal insight into supply chain abuses, community displacement, or frontline labour exploitation. Consequently, the decisions taken reflect investor priorities while disregarding those most vulnerable to corporate harm.

Inclusion, when it occurs, is often tokenistic. Committees might feature one woman or minority representative more to signal progress than to reorient power. Governance then becomes not a system of shared responsibility but a shield that sustains exclusion under the guise of representation. This systemic disconnect erodes trust and widens the accountability gap within ESG.

 

4.3      Subchapter 3: Rebuilding Governance—From Formality to Justice

To restore the integrity of ESG, governance must evolve from a performative protocol to a participatory power. This shift begins by replacing voluntary, self-directed compliance with statutory obligations. Governments must enforce environmental and human rights due diligence laws and require companies to undergo third-party audits. The European Union's Corporate Sustainability Reporting Directive (CSRD) and France's Duty of Vigilance Law exemplify frameworks that mandate corporate accountability across the value chain (Li et al., 2022).

However, legal oversight is only part of the equation. Civil society, including NGOs, labour unions, Indigenous communities, and youth organizations, must be actively integrated into governance structures rather than being relegated to the role of observers or critics. Their inclusion ensures that corporate decisions reflect diverse perspectives and systemic equity, not merely market logic.

Community-led governance initiatives offer a promising model for addressing these challenges. In many contexts, local groups have devised monitoring mechanisms, stewardship councils, and sustainability partnerships that are not only more legitimate but also more effective. These efforts demonstrate that governance is not just technical. It is moral and political.

As organizations recognize this truth, they can reimagine governance as a dynamic system of shared stewardship. Diverse voices must not only be heard—they must shape decisions, set standards, and hold power. Transparent governance demands redistribution, not just disclosure. It must replace secrecy with accountability, hierarchy with dialogue, and tokenism with inclusion.

 

4.4      Conclusion: Governance as the Foundation of Ethical ESG

If governance remains the weakest link in ESG, then reform must begin there. The credibility of any sustainability effort depends on its backbone, not its slogans, but its structures. For ESG to live up to its transformative potential, governance must evolve into a dynamic force that reflects justice, transparency, and participatory power.

This transformation calls for systemic change: rethinking who governs, how decisions are made, and what values those decisions uphold. Only through genuine stakeholder engagement and enforceable accountability can ESG move beyond illusion, becoming not a hollow code but a living contract between business and society.

 

5        Chapter 5: Risk Is Not Enough—The Case for Responsibility Over Reputation

 

5.1      Subchapter 1: The Risk Paradigm—ESG as Image Insurance

In its current form, ESG often operates within the confines of risk management logic. Corporations adopt ESG principles not to catalyze systemic transformation but to buffer themselves against investor backlash, reputational threats, and regulatory scrutiny. ESG becomes a strategy for self-preservation rather than an ethical compass. As Wang et al. (2023) observe, this short-term, defensive posture reduces ESG to a branding mechanism rather than a tool for long-term societal value.

This image-centric model prioritizes quarterly earnings over planetary health and investor perception over community dignity. The people most affected, such as farmers displaced by deforestation, factory workers in exploitative conditions, or villagers facing water scarcity, rarely factor into ESG scorecards. The logic becomes: How do we protect ourselves from harm? Rather than How do we prevent harm to others?

This narrow framing has led to performative compliance. Fossil fuel giants tout carbon offsets while expanding their drilling operations, and fashion brands declare "ethical sourcing" while their supply chains remain opaque and exploitative (Behringer & Szegedi, 2016). These behaviours reveal a core weakness: ESG, built on reputation management, cannot sustain ethical integrity or societal trust.

 

5.2      Subchapter 2: Reframing ESG – Responsibility as Long-Term Value

The risk mindset not only distorts ESG but also misses a key opportunity: responsibility is a strategic asset, not a liability. Authentic ESG leadership begins when companies move beyond short-term optics to long-term moral responsibility. This requires reevaluating how success is measured, not just by returns alone but also by regenerative impact, community trust, and ethical resilience.

Research shows that companies which embed responsibility into their operations often demonstrate greater crisis resilience and stakeholder loyalty (Cheung & Lai, 2023; Wang et al., 2023). Examples include investing in community-driven infrastructure, practising regenerative agriculture, or prioritizing fair labour practices beyond compliance thresholds. These approaches foster enduring relationships that no brand campaign can substitute (Malini, 2021).

You (2025) argue that social justice must be woven into corporate strategy, not appended as a philanthropic afterthought. Governance should be about care and co-creation, not control. Instead of asking, 'How are we seen?' companies must ask, 'Whom do we serve?' This philosophical pivot transforms ESG into a relational model that values people, the planet, and dignity over profit-centric metrics.

 

5.3      Subchapter 3: From Optics to Ethics—Redefining Stakeholder Relationships

To evolve ESG beyond risk, companies must shift from transactional reputation management to a relational approach to responsibility. Traditional ESG approaches often treat workers as cost inputs, Indigenous communities as legal obstacles, and the environment as a regulatory burden. In contrast, a relationship-centred ESG model views each stakeholder as a partner in coexistence and innovation (Xu & Woo, 2022; Reynolds, 2024).

This reimagining demands that corporate metrics evolve to account for human dignity, intergenerational sustainability, and shared ownership of outcomes. It also requires profound internal change: replacing control with trust, opacity with transparency, and detachment with empathy. ESG becomes less about shareholder confidence and more about ecosystem stewardship.

Moreover, corporations must embrace constructive scrutiny, humility, and ongoing dialogue. Authentic engagement is not about extracting community data for reports but co-developing strategies that serve both business and society. This approach prepares companies for a future where success is measured not only by scale but also by the depth of impact and breadth of inclusion (Xu & Woo, 2022).

Responsibility, then, is not simply ethical. It is essential for long-term survival. It bridges corporate ambition with public legitimacy. When companies shift from managing optics to embracing truth, ESG becomes a transformative framework capable of navigating uncertainty, restoring trust, and regenerating value socially and ecologically.

 

5.4      Conclusion: From Risk Shields to Moral Compasses

The future of ESG hinges on a crucial pivot: from risk avoidance to responsibility-led governance. The question is no longer whether ESG protects corporations from harm; it is whether ESG can effectively mitigate harm. It must ask whether corporations protect the people and ecosystems they depend upon.

To be meaningful, ESG must be rooted in justice, care, and shared responsibility. This evolution requires companies to discard cosmetic compliance and adopt ethical engagement. Only then can ESG shift from a façade to a foundation empowering inclusive, sustainable, and accountable futures.

 

6        Chapter 6: ESG Reimagined—A Manifesto for Regenerative, Just, and Transparent Systems

 

6.1      Subchapter 1: From Corporate Checklists to Civic Contracts

The time has come to reimagine ESG not as a branding tool or checklist but as a civic manifesto. If environmental, social, and governance frameworks are to survive and remain relevant amidst compounding climate, equity, and accountability crises, they must be fundamentally rebuilt. ESG must transition from the realm of voluntary disclosures to a rights-based legal framework, one led not by consultants or investors but by communities that bear the brunt of social injustice and environmental collapse (Bhattacharya & Sachdev, 2024).

In this new vision, ESG becomes a constitutional framework rather than a marketing script. Workers, communities, and civil society actors must have legal standing to challenge ESG violations, and employees must co-author ESG goals, not merely execute them. Nature, too, must be viewed not as a resource to be exploited but as a rights-bearing entity that requires protection and advocacy (Lagodiyenko, 2024). This reframing encourages corporations to treat ESG not as an external pressure but as a public obligation rooted in democratic ethics.

True transformation demands that ESG be anchored in enforceable law and powered by open, accessible data. Transparency must invite scrutiny, not just celebration. With this foundation, ESG 2.0 becomes a regenerative, just, and accountable system that centres on people and the planet, not merely on portfolios.

 

6.2      Subchapter 2: Digital Transparency and Participatory Governance

A cornerstone of this reimagined ESG is open data transparency. Digital tools, such as blockchain, remote sensing, and open registries, can democratize access to ESG metrics, enabling real-time monitoring of emissions, labour violations, and supply chain practices (Gao et al., 2024; Xie et al., 2024). However, technology alone is not a solution. If implemented without consideration for equity, digital ESG reporting may perpetuate existing inequalities, excluding those without access to digital platforms or the necessary technical literacy (Li et al., 2024).

To counter this risk, companies must embed community-centred digital infrastructures. Countries like Chile have pioneered open-access environmental registries, enabling grassroots organizations and citizens to engage directly in environmental monitoring and enforcement (Bhattacharya & Sachdev, 2024). These models reflect a shift in corporate responsibility from top-down disclosures to community co-governance.

Participatory governance is equally essential. Case studies from Norway and Colombia demonstrate how industries can foster trust by engaging with Indigenous communities, pension funds, and local councils in meaningful dialogue and shared decision-making (Sari, 2025). These examples answer a critical question for ESG: Whom do we serve? In ESG 2.0, governance is not about protecting investor risk. It is about co-creating just futures.

 

6.3      Subchapter 3: Regeneration as the New Standard

The evolution of ESG must also include a shift from harm mitigation to active regeneration. Corporate responsibility should not end at reducing emissions or publishing DEI reports. Instead, companies must commit to restoring ecosystems, rebuilding social fabric, and repairing historical injustices (Esparza et al., 2022). This forward-looking ESG framework calls for investments in biodiversity, Indigenous land stewardship, community wealth-building, and circular economies.

Rather than treating responsibility as an annual compliance review, corporations should adopt ongoing regenerative commitments that reflect holistic values. As Markova-Karpuzova et al. (2024) argue, ESG success should no longer be measured solely in carbon or compliance but in the quality of lives improved, ecosystems restored, and systems made more just.

This is not merely aspirational. It is a new operating ethos for corporations. ESG must evolve from a tool of performance optics to a living practice rooted in equity and shared humanity. Companies that adopt this regenerative lens build resilience, earn long-term trust, and shape markets not just by value but by values.

 

6.4      Conclusion: Toward ESG as a Right, Not a Rating

The path forward for ESG demands structural reinvention, not cosmetic adjustment. If ESG is to be more than a façade, it must transform into a civic, regenerative, and justice-driven framework. This vision begins with law, is built through participation, and is sustained by transparency. It must serve not only shareholders but also communities, ecosystems, and future generations.

True ESG is not a rating. It is a right. It does not merely reflect values; it protects them. Through rights-based accountability, participatory governance, and regenerative practice, ESG can become a global compass, one that guides institutions, rebuilds trust, and fosters equity in the face of rising fragmentation.

 

7        Chapter 7: Final Thought – Toward a Living ESG That Serves All

7.1      Subchapter 1: From Critique to Compass – A Call Forward, Not a Takedown

This series is not a takedown. It is a call forward. The critiques and case studies throughout these chapters offer more than disillusionment; they unveil a roadmap for institutional renewal. It is a call to regulators to legislate with conscience, to investors to seek more than short-term returns, and to communities to claim a seat at the decision-making table. ESG, flawed though it may be, still holds vast transformative potential.

For ESG to serve the future, it must move beyond metrics and toward meaning, from symbolic compliance to structural change. Its legitimacy depends not on how well it reports but on how deeply it reforms—with and for the very people most affected by corporate actions.

The transition to ESG 2.0 rests on a more profound philosophy: that people-centred justice and environmental stewardship are not conflicting goals but interdependent imperatives. This requires systemic changes in corporate governance, stakeholder engagement, and policy reform guided by equity, ethics, and a long-term vision (Chopra et al., 2024).

 

7.2      Subchapter 2: Rethinking Responsibility – From Performative Compliance to Ethical Commitment

Today's ESG often mirrors a fragmented reality, projecting ambition while distorting the truth. It reduces justice to a checkbox, equity to a slogan, and sustainability to a marketing pitch. Despite the initial promise, ESG has become entangled in metrics that measure what is easy rather than what is essential.

 True transformation begins with rooting ESG in civic responsibility, not corporate optics. That means embracing ethical accountability, confronting systemic inequities, and asking critical questions: Who holds power? Who bears the risk? Who defines value? (Keeley et al., 2022). These are not philosophical diversions. They are strategic necessities.

 Emerging practices show the path forward. Indigenous communities managing forests, workers co-designing sustainability protocols, and civil society leveraging open data all exemplify a shift toward shared ownership and moral responsibility. These movements redefine ESG as a civic tool that serves the flourishing of both humans and the ecosystem, not just economic efficiency (Yulianti, 2024).

 

7.3      Subchapter 3: Democratizing Governance—Inclusion Beyond Financial Corridors

If ESG is to fulfil its potential, it must be governed democratically, not technocratically. ESG 2.0 must extend stakeholder participation beyond elite financial corridors into inclusive, deliberative spaces where local communities, youth movements, labour unions, and Indigenous councils hold real power (Clementino & Perkins, 2020).

 This democratization reorients ESG away from profit maximization toward ecocentric governance. The goal is not simply broader representation but shared sovereignty over sustainability decisions. Governance becomes a living, responsive process, one shaped by those living with the consequences of economic and environmental decisions.

Case studies from Latin America and Scandinavia reveal the effectiveness of participatory governance in ESG implementation. Such frameworks ensure that sustainability is not imposed from above but co-created from below, aligning economic growth with ecological and social resilience (Sari, 2025).

 

7.4      Subchapter 4: Regenerative Imperatives – Healing, Not Just Minimizing Harm

The ESG of tomorrow must go beyond harm reduction to embrace regenerative economics. Companies must shift from extractive models to practices that restore biodiversity, renew communities, and redress historic injustices (Giannopoulos et al., 2022). Regeneration is not a trend. It is an ethical standard.

This transition necessitates a recalibration of ESG metrics to encompass contributions to community wealth-building, intergenerational justice, and cultural revitalization. Blockchain for transparency, circular design for sustainability, and community-led evaluation frameworks for equity are just a few of the tools ESG 2.0 can employ (He, 2024).

By replacing passive compliance with proactive commitment, ESG becomes not an obligation but a movement anchored in justice and propelled by empathy. The stories of communities, not just shareholders, must shape the sustainability scorecards.

 

7.5      Subchapter 5: The Movement Ahead – Designing Systems That Serve

The time has come to transform ESG into a living framework of ethical action. This means embedding mutual respect, humility, and co-responsibility into corporate practice. It means recognizing that a sustainable future must be co-authored by the communities most impacted.

This journey is not about perfect metrics but meaningful transformation. It asks companies to redefine success not by market capitalization alone but by the trust they build, the harms they heal, and the futures they co-create.

As Wang (2024) and Koblianska et al. (2024) suggest, the next era of ESG must align financial logic with moral logic. This is not idealism. It is an essential evolution of capitalism in a world increasingly shaped by ecological limits and social fractures.

In conclusion, our pursuit of ESG 2.0 must centre on inclusive design, shared governance, and regenerative practices. The world does not need another reporting framework. It needs a justice framework, an ESG that not only counts carbon but also counts on people.

 

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