Why business schools must uphold the importance of covering ESG topics

For the last 20 years, I have been a professor at leading business schools – Harvard, Cornell and now Cambridge – where I have been able to witness some of the world’s leading thinkers address the biggest challenges of our day, from the rise of big tech and the digital economy to Covid-19 and its aftermath. But the most contentious set of issues I have heard debated in faculty office halls, classrooms and the public square are corporate ESG activities.

The ESG debate

Many business professors adopt a stance that I call the ‘Larry Fink position’ after the CEO of BlackRock, one of the largest asset managers in the world. Until recently, Fink was a vocal advocate of ESG, mainly as a form of risk management. In his (previous) telling, he supported ESG because it is a win-win proposition for businesses, investors and the planet. Firms that do not take ESG factors into account, he warned, are more likely to face regulatory fines, lawsuits, and reputational damage. It’s an easy pill to swallow, doing well by doing good. As he put it, ESG is, “essential to long-term profitability.”

But as is now well known, ESG has come under attack. The US political right has invoked the bogeyman of ‘wokeness’ to warn of a supposed mortal threat to capitalism and a potentially ruinous effort to impose a left-wing agenda on economies and culture. Against Fink’s assessment that it helps business performance, ESG’s detractors say it is a violation of business leaders’ “fiduciary duties” to stakeholders, especially investors.

With ESG under fire, Larry Fink reversed course: in the face of ‘anti-woke’ political pressure, BlackRock significantly scaled back its support for environmental resolution and publicly said that it “will continue to invest in and support fossil fuel companies.”

Taking a stand

But the business school community can’t scale back the future. We must take a stand now to reinforce the message that ESG principles are essential for business and the health of the planet. Business schools are training the next generation of leaders and we have a sacred duty to make sure that business school curricula, unlike BlackRock, don’t reverse course on essential goals, such as fighting climate change, seeking economic and racial justice and ensuring that organisations are managed and governed effectively and compassionately.

We need to call out that the obsession with ESG as a dangerous cultural influence seems less about caring for stakeholders and more like reactionary overreach by corporations that are looking to protect their vested interests in environmentally and socially devastating practices.

Billionaires like the Koch brothers and their allies in the fossil fuel industry have successfully lobbied Republican-controlled states, such as Texas and West Virginia, to pass anti-ESG legislation. A recent report by Pleiades Strategy identified four rightwing thinktanks – the American Legislative Exchange Council, the Heritage Foundation, the Heartland Institute and the Foundation for Government Accountability – as the ‘brains’ behind more than 165 pieces of anti-ESG legislation put forth by Republican lawmakers in 2023.

Indeed, a huge share of profits depends on the maintenance of legal, economic and social systems that allow companies to skirt responsibility for the societal and environmental costs of production – and, not coincidentally, passing those costs on to consumers and broader society. Rallying behind ‘free market’ ideas has been a common smoke screen for rich individuals and corporations to benefit while passing the buck to others.

For instance, the very air that we breathe is a free landfill for carbon emissions and the oceans for other waste. Pollution is mostly out of sight, out of mind for companies, allowing greater profits because they aren’t forced or motivated to spend money on mitigating it. Tens of millions of slaves are embedded in companies' supply chains, ensuring low production costs. Closer to home, US banks earn billions from high overdraft fees that are disproportionately paid by the poor, while the fees for wealth management accounts decreased during the pandemic and banks earned more than ever. 

The list goes on. Alongside climate disasters, Covid-19 exposed structural issues in our society that have steadily worsened over the decades – among them low wages, scant benefits and increasingly unsafe working conditions. In the meantime, the world has begun to acknowledge the harrowing consequences of systemic racism. But we need to do more than identify our systemic problems; we must also think about their solutions.

Equipping students with the tools for change

If things are threatening to tip the wrong way, how do we push them in the other direction? While government policies play a big role, as a business professor I have come to recognise the potential that businesses have for driving positive change as well. We need to equip our students with case studies and frameworks to be able to make a positive difference in the world.

For example, issues of responsibility to the environment and society must be further integrated into curricula. At Cambridge Judge Business School, we are actively working to enhance sustainability content for our MBAs while working with other business schools to underline the importance of ESG issues. About a third of our core MBA teaching hours now cover ESG or climate solutions and a core class, entitled Sustainable Business, will next year move to the first term as a reflection of the topic’s importance.

There is no shortage of existing business school cases that showcase sustainable approaches. For example, the shoe and apparel company Allbirds has developed an in-depth carbon accounting system that enables it to reduce emissions step by step. Patagonia has reengineered its business around the concept of being a ‘regenerative business’, thereby positively contributing to the environment and working with other companies to spread this model. Finally, fintech company Payactiv has created an electronic payments system that allows employees to access their wages before payday, without the high interest rates of costly payday loans and with the added benefit of building savings and financial stability.

These topics span supply chain operations, stakeholder management and organisational leadership and culture, as well as finance and accounting. Tomorrow’s business models hinge on innovation across business disciplines and the students of today and the future will be clamouring for this content.

The noise around ESG is likely to continue as those pushing the anti-woke message have deep pockets, but we need to step back and make sure the corporate models we teach don’t fall prey to the pressures that led Larry Fink to reverse course. Environmental, social and governance factors are about good business and innovation; we should double down on ensuring such principles are integrated further into the MBA degree.

Christopher Marquis is the Sinyi Professor at the University of Cambridge Judge School of Business. Prior to Cambridge, he spent 17 years at Cornell, Harvard Business School and the Harvard Kennedy School.
Marquis is also the author of The Profiteers: How Business Privatises Profits and Socialises Costs (published by PublicAffairs, 2024)