ESG codes and standards have proliferated over the past two decades. The hard question is whether any of it is actually changing how business is done or simply producing better-looking annual reports.
There is something uncomfortable about the state of corporate sustainability today. Across boardrooms and reporting departments, enormous effort is being expended on codes, disclosures and frameworks. Yet by most honest assessments, business behaviour has not shifted nearly enough. Progress has been made, but not at the pace – or with the depth of change – demanded by the scale of the challenge.
This is not a cynical argument against sustainability. It is an argument about what actually drives change and whether the mechanisms we are using to achieve this are fit for purpose.
The Alphabet Soup problem
In recognition of the substantial influence that business has on society and the environment, the past two decades have seen a remarkable proliferation of frameworks designed to shift corporate behaviour. To name just a few: the Global Reporting Initiative (GRI), the Sustainability Accounting Standard Board (SASB), the United Nations Sustainable Development Goals (SDGs), South Africa’s King IV Code of Corporate Governance, The International Integrated Reporting Council (IIRC), various International Organization for Standardization (ISO) standards and, more recently, International Financial Reporting Standards (IFRS) sustainability disclosure requirements. Each was introduced with genuine intent, and each is defensible on its own terms.
Collectively, they produced what critics aptly dubbed an ‘alphabet soup’, a dense, overlapping landscape of standards that is enough to overwhelm even well-resourced compliance teams. For smaller businesses, the effect has been paralysing. For larger ones, the response has often been pragmatic in the worst sense: outsource it to the sustainability department, tick the required boxes and report accordingly.
The investor community amplified the pressure. ESG screening, SRI funds and investor engagement initiatives piled additional disclosure obligations onto companies. The result was more reporting, more resources spent on compliance and, in many cases, only superficial engagement with the underlying principles. Referencing the SDGs in an annual report – if not associated with shifting behaviour – is, in effect, putting a positive spin on business as usual.
Compliance is not transformation
The core problem is structural. When sustainability is treated primarily as a compliance obligation, even one with board sign-off, it becomes a bottom-up exercise. Sustainability managers co-ordinate inputs, meet disclosure requirements and produce polished reports. What they rarely have is a mandate to change business practice.
Take the concept of materiality, which sits at the heart of most major frameworks. Done properly, a materiality assessment should grapple with the issues most consequential to a business and its stakeholders and feed directly into strategy, capital allocation and operational decision-making. In practice, it too often feeds into a reporting indicator framework that measures performance against an issue, without actually connecting to how the business is run.
This is the gap between form and substance that the King IV code warned of. And it is a gap that is, frankly, taking too long to close. The ESG backlash, which was particularly evident in the United States, is in part a reaction to exactly this: years of high-effort, low-impact sustainability activity that has failed to demonstrate proportionate returns, either to business or to society.
The principles were always sound
None of this means the underlying frameworks are wrong. The principles embedded in most major sustainability standards- materiality, stakeholder value, long-term thinking and holistic value creation- are genuinely powerful if applied with rigour. The problem is not the recipe – it is that too many organisations are ordering take-out rather than actually doing the cooking.
What is required is not a paint-by-numbers approach to compliance, but a real board-level understanding of how the sustainability agenda intersects with strategy. That means grappling seriously with trade-offs: between short-term returns and long-term resilience; between serving shareholders and managing the expectations of communities, regulators and employees; and between the business case for change and the cost and disruption that change entails.
This is leadership work. It cannot be delegated to a reporting function.
Economics will do what standards could not
There is a growing realisation that compliance and image can only take a business so far. They will always attract limited leadership attention and constrained resource allocation. The real lever is economics.
When the business case for sustainable decision-making becomes compelling, and when the numbers work, leadership attention follows. This is already playing out in ways that no voluntary standard has managed to achieve.
Renewable energy is the clearest example. Across South Africa and globally, companies are installing solar and signing renewable power purchase agreements – not because of ESG scoring, but because the economics are superior to grid dependency. Loadshedding and escalating Eskom tariffs have done more to shift corporate energy behaviour than years of carbon reporting ever did.
Retailers using data analytics to reduce food waste are discovering that what is good for the environment is also good for margins. Banks and fintech companies extending financial services to previously unbanked, low-income populations are finding it profitable. Capitec’s rise to become South Africa’s largest bank by customer numbers is perhaps the most striking illustration.
Regulatory economics are beginning to catch up, too. Mechanisms like the Carbon Border Adjustment Mechanism (CBAM) will make carbon intensity a matter of export competitiveness, not aspiration. A carbon tax with genuine teeth will land on a board’s agenda with an urgency that no voluntary disclosure framework has ever managed. Standards will play a supporting role in this shift, but the driver will be economic self-interest.
What should businesses actually do?
This is not an argument for abandoning standards. They are here to stay and rightly so. But the era of adopting every available framework in a bid to signal virtue is drawing to a close, slowly being replaced by a more selective and strategic approach.
Businesses should choose standards according to their own context, sector and stakeholder landscape, with leadership awareness of why each has been adopted and what substantive change it is intended to drive. Adoption without intent is disclosure without transformation.
More fundamentally, boards need to develop genuine literacy around the sustainability agenda, not as a compliance matter, but as a strategic one. The businesses that will navigate this landscape successfully are those that understand how shifting resource economics, regulatory trajectories, consumer behaviour and technological change are rewriting the rules of their industries. Those that don’t do this strategic work risk being caught unprepared as the tide turns.
The question is not whether sustainability matters to your business. It does, and it will increasingly do so. The question is whether your board understands it well enough to make it matter before circumstances force the issue.
Contact: Nick Rockey
