The Debate
Over the last decade, environmental, social, and governance (ESG) criteria became a corporate buzzword, championed for embedding sustainability, equity, and governance into business practices. With initiatives like diversity equity and inclusion (DEI) programs and net-zero pledges, ESG promised a new standard: doing well by doing good.
Yet, the narrative has soured. Critics, including the National Review, argue ESG has morphed into a tool for coercion rather than progress, calling it a “shakedown” born of elite pressure and regulatory overreach. The publication claims ESG’s rise relied on “thinly veiled threats of future legal and political retribution,” forcing companies into compliance with little grassroots demand.
This critique resonates with growing concerns. ESG stands accused of prioritizing social optics over shareholder value, burdening companies with vague and subjective goals. High-profile marketing missteps and backlash underscore ESG’s disconnect from consumer expectations. As political movements aim to dismantle ESG regulations, its future looks increasingly tenuous.
But does ESG’s decline signal the end of corporate responsibility? Not necessarily. It may pave the way for something better: climate accounting. Unlike ESG, this approach grounds itself in measurable, auditable data, promising to deliver what ESG failed to achieve.
The Answer
Climate accounting focuses on precision, accountability, and transparency. Unlike ESG’s sprawling framework, which blends environmental, social, and governance goals, climate accounting zeroes in on greenhouse gas (GHG) emissions—measurable and verifiable data tied to economic activity. It’s a shift from the abstract to the actionable.
This approach borrows from the rigor of financial accounting. Standards like the International Financial Reporting System (IFRS) Sustainability Accounting Standards Board (SASB) ensure emissions are calculated consistently and auditable across industries. By tracking Scope 1, 2, and 3 emissions, climate accounting offers an honest look at a company’s impact on the environment.
Unlike ESG’s subjective metrics, such as diversity policies or community engagement, climate accounting deals with hard numbers. This precision allows businesses to make informed decisions and take meaningful steps to reduce emissions. It also speaks to today’s consumer demand for authenticity—providing a clear, transparent path toward sustainability.
By moving beyond ESG’s broad narratives, climate accounting builds trust. It focuses on verifiable climate impact, setting a standard of integrity that resonates with both stakeholders and the marketplace.
Climate Accounting in a Low-Carbon Future
A low-carbon future is no longer a choice; it’s an inevitability. Millennials and Gen Z, now shaping markets and workplaces, demand environmental accountability. For them, sustainability is a baseline, not a bonus. Political shifts may alter regulations, but they won’t change the values driving this generational push.
This shift reflects a broader concern for the planet’s future. Consumers now demand more than green promises; they want proof. Greenwashing—vague or misleading environmental claims—no longer works. Buyers scrutinize their favorite brands, seeking data on carbon impact, from sneakers to sandwiches. It’s not a stretch to imagine a school-yard taunt calling out the carbon footprint of a child’s backpack. Kids can be cruel, I should know, I have two of them.
Climate accounting provides the tools to measure and reduce emissions with precision. Companies that adopt this approach signal their commitment to transparency, earning the trust of a generation voting with their wallets.
Those who resist risk irrelevance. Younger consumers reward leadership, not laggards. Climate accounting helps businesses lead by rooting sustainability in measurable action, ensuring they stay ahead of shifting expectations.
Avoiding the Pitfalls of ESG
ESG’s broad scope is its Achilles’ heel. By attempting to cover everything from governance to social issues, it becomes too vague to be actionable. Critics argue its subjective criteria, like diversity initiatives or social programs, make it hard to measure success. This lack of clarity opens ESG to accusations of performative gestures and inefficiency.
Climate accounting avoids these pitfalls. By narrowing its focus to tangible, auditable GHG emissions, it delivers actionable insights. Standards like the GHG Protocol provide businesses with clear methods to calculate and reduce their carbon footprint. This precision replaces ESG’s ambiguity with data-backed accountability.
Audits are a cornerstone of accounting generally, and climate accounting specifically. They verify emissions data, preventing greenwashing and safeguarding businesses from public and regulatory backlash. In a world where missteps can lead to reputational damage, audits ensure credibility and trust.
The “get-woke-go-broke” criticism often leveled at ESG stems from failures to balance image with impact. Climate accounting avoids this trap by focusing on measurable environmental outcomes, not vague commitments. It enables businesses to make real progress while avoiding the backlash that comes with overpromising and underdelivering.
By embracing a data-driven, focused approach, climate accounting offers a path forward. It sidesteps the controversy surrounding ESG while delivering the transparency and accountability modern consumers demand.
Evolve or perish
Companies today face a pivotal choice: dismantle their ESG programs, tout their allegiance to free-market principles, and claim they always knew ESG wouldn’t last—or take the smarter path forward by evolving ESG into climate accounting. The former is an exercise in public relations spin. The latter is a strategic move that integrates sustainability into the core of business operations by transitioning environmental reporting from sustainability teams to climate reporting originating from finance departments.
Climate accounting focuses on measurable and auditable greenhouse gas (GHG) emissions. It prepares companies to tackle growing risks like carbon pricing and regulatory changes, ensuring they don’t fall into the trap of unmanaged risks. Ignoring risks—any risks—is not just a lapse in good management; it’s a dereliction of fiduciary duty. Unchecked risks expose businesses to financial, reputational, and operational vulnerabilities that could easily have been mitigated with foresight and action.
Executives and board members have a responsibility to safeguard the long-term value of their organizations. Climate accounting equips them to do exactly that. By adopting practices grounded in transparency and accountability, leaders can fulfill their fiduciary duties while positioning their companies as resilient and aggressive players in a low-carbon economy.