Has ESG lost its way? Alex Edmans on rational sustainability
Alex Edmans explains how rational sustainability can help leaders cut through ESG debates and focus on long-term value.
In 30 seconds
ESG may be under pressure, but the case for long-term value creation is stronger than ever.
The most effective sustainability strategies start with materiality, not metrics.
Great leaders do not avoid trade-offs. They make them consciously and communicate them clearly.
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As debates around ESG become increasingly polarised, how can business leaders cut through the noise and focus on what truly creates long-term value?
Alex Edmans, Professor of Finance at London Business School, determines rational sustainability to be the answer. In discussion with Sergei Guriev, Dean and Professor of Economics at London Business School, Alex draws on his own work to explore the topic.
ESG brought sustainability into the mainstream, then faced a politically charged backlash. Alex places ESG to one side and introduces the simple evidence-led approach of rational sustainability.
Sustainability should not be viewed as an ideology, a communications exercise or a box-ticking exercise, he claims. Instead, leaders should approach sustainability with the same rigour, analysis and clear-headed decision-making they apply to any other strategic investment.
To help leaders cut through the noise, Alex and Sergei explore what comes next and how organisations can make better decisions that benefit both shareholders and society over the long-term.
Featured guest
Alex Edmans, Professor of Finance, London Business School
Moving beyond the ESG divide
Why has ESG become such a polarising topic?
Alex explains why and argues we need to move beyond labels and political narratives. He introduces rational sustainability, a framework based on evidence, long-term thinking and value creation.
Further reading
The End of ESG by Alex Edmans
Why ESG needs a rethink by Alex Edmans
"The idea that the pie can be grown, that we can have win-win outcomes, is not pie in the sky, it's not wishful thinking – it is based on rigorous evidence."
Why long-term value creation requires patience
Many sustainability investments take years to generate measurable returns.
Alex explains why the benefits of investing in employees, culture, trust and innovation often emerge over a much longer timeframe than quarterly reporting cycles allow. For leaders, the challenge is not simply identifying value-creating opportunities but maintaining the conviction to pursue them over time.
Further reading
Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices by Alex Edmans
Grow the Pie by Alex Edmans
"It takes four to five years before the effects of employee satisfaction are fully impounded in the stock price."
Materiality, trade-offs and decision-making
Alex discusses with Sergei why leaders should focus on the sustainability issues that are most material to their business rather than attempting to address every ESG metric. He highlights the importance of trade-offs, prioritisation and commercial realism.
Further reading
Global Reporting Initiative – global best practice for sustainability reporting
“Rationality here is about thinking about trade-offs. Economics is all about trade-offs. Nothing is free. There is no free lunch.”
Making sustainability part of strategy
Rather than treating sustainability as a separate initiative, Alex explains how organisations can integrate it into finance, operations and strategic decision-making.
Further reading
“Purpose for a company is almost as much as about knowing what not to do as what to do.”
Top takeaways
Sustainability should be evidence-led, not ideology-led. Decisions should be grounded in analysis, business logic and evidence rather than labels or political positions.
Long-term value creation often benefits both companies and stakeholders. Sustainability is not necessarily a trade-off between profit and purpose.
Materiality matters. Leaders should focus on the sustainability issues most relevant to their business model and stakeholders.
Trade-offs are unavoidable. Effective sustainability strategies require prioritisation and informed judgement.
Sustainability should be integrated into mainstream business decision-making. It should sit alongside finance, strategy and operations, not separate from them.
Continue the conversation
How is your organisation approaching sustainability in an increasingly complex and polarised environment?
Explore more research and thought leadership from London Business School on sustainability, strategy, leadership and long-term value creation on Think.
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