Should ESG Be Renamed? Shareholder and stakeholder interests should be one and the same.

• Author: Haves, Bill
• Position: BIG IDEAS FOR CORPORATE GOVERNANCE

ESG seems to break supporters and detractors into two fairly rigid sides. There are those who believe it is essential for boards to monitor the concerns of stakeholders in the environmental and social arenas to ensure the long-term success of the company. And then there are those who believe such monitoring detracts from the main mission of a board: ensuring an optimal benefit and return for a company's shareholders. John Wilcox, chairman emeritus at Morrow Sodali, a provider of strategic advice for corporate boards and executives, believes the two sides need not be mutually exclusive. In "Beyond ESG: An Integrated Approach to Governance, Investing and Regulation," a piece he wrote for Directors & Boards online, he presented the argument for a more integrated approach to ESG, one that would combine the social and environmental considerations with more traditional financial concerns.

Bill Hayes: In "Beyond ESG: An Integrated Approach to Governance, Investing and Regulation," you stated that a new term to replace ESG is urgently needed. Why does the term ESG not work, and what would you suggest as a replacement?

John Wilcox: The reason is that, in the business world and in the investment world, there is a realization that these issues, which had been described previously as nonfinancial issues, are truly important to the financial performance of a business. They need to be incorporated into the fundamentals of running a business enterprise, instead of being viewed as extraneous. There still is a lot of commentary that goes back to the core Milton Friedman concept that the sole responsibility of a public company is to its shareholders, to make a profit and to make a share price go up. That's obviously simplifying what he said, but that's the way it's been interpreted, and that's the way a lot of business leaders feel. What has happened in the past several years is a 180-degree change from a narrow concept to a recognition that when you're dealing with a business enterprise, you've got to look at all these other factors that are not found on the balance sheet or in the accounting standards. That's why I think we need a new term.

BH: Why is the idea of integration so important in the ESG space and the business space in general? How could an integrated approach benefit work around ESG ?

JW: Let's go back to the International Integrated Reporting Council, which is a movement that goes back about a decade. That hasn't been as high-profile in the...