A&M Asks: Why Are Companies Failing to Turn ESG Into Value?

Since the mid 2010s, ESG strategies have been a fixture in corporate boardrooms, however, many companies are struggling to turn them into real value.

According to a whitepaper published by consultancy firm Alvarez & Marsal (A&M), most boards remain stuck in a compliance mindset, failing to recognise ESG’s potential as a commercial driver.

Despite mounting regulatory pressures and stakeholder demands, ESG can remain a box-ticking exercise.

“Company boards are facing many challenges, including how to align commercial priorities and compliance activities when it comes to decarbonising their operations,” says James Spencer, Director of A&M’s Global Transaction Advisory Group and co-author of the whitepaper.

Is ESG an untapped opportunity?

The whitepaper says one of the key reasons boards struggle with ESG is their approach to disclosures.

A&M highlights that while frameworks like the UK’s Transition Planning Taskforce provide guidance on sustainability reporting, they often lead to a focus on risk mitigation rather than proactive investment.

According to A&M, this reactive approach could be hindering long-term planning and value creation.

Graham Macgregor, Managing Director at A&M and co-author of the whitepaper, says: “In the midst of numerous short-term challenges, it can be challenging to pause, reflect and align immediate actions with long-term goals.”

Instead, boards could integrate ESG into their broader business transformation strategies, ensuring that sustainability efforts are embedded in commercial decision-making.

Decarbonisation requires investment, not just reporting

One of the key points in A&M’s whitepaper is that a successful ESG strategy hinges on investment, rather than just reporting obligations.

The firm says that carbon markets (currently valued at around US$950bn in annual trades) are a clear economic incentive for businesses willing to take a proactive approach to decarbonisation.

But A&M says many companies are hesitant about committing resources to new technologies, often citing regulatory uncertainty or a lack of immediate returns.

This hesitancy is short-sighted, the report says. 

In 2015, Henry M. Paulson Jr., former Secretary of the US Treasury said: “Climate change is where short-term thinking and long-term consequences collide for businesses and governments alike.

“Meeting the challenge of climate change calls on both to assess the risks and act before the economic and environmental consequences of failure are irreversible.”

A&M’s whitepaper argues that a well-executed ESG strategy can create competitive advantages in the long term, particularly for companies in sectors where sustainability credentials are becoming a key differentiator.

Essentially, businesses that move early to align with regulatory frameworks and consumer expectations will be better positioned to benefit from incentives and avoid penalties.

Pragmatism over perfection

One of the most significant barriers to ESG success, according to A&M, is the pursuit of perfection at the expense of pragmatism.

Boards can struggle to act decisively because they fear making imperfect decisions.

However, the whitepaper argues that a gradual and iterative approach to ESG is far more effective than waiting for the perfect moment to act.

Tony Alvarez II, CEO of A&M, says: “It’s the magic of human endeavour.

“You can get people to do more than they think they are capable of if you lead them.”

Rethinking board priorities

To unlock ESG’s full potential, A&M suggests that boards need to rethink how they measure success.

For A&M, it’s not that traditional financial metrics are unimportant. 

Rather, it is worth considering ESG as a driving force behind innovation, customer loyalty and long-term profitability.

Is a shift in mindset needed?

A&M’s whitepaper makes a compelling case for boards to move beyond ESG as a regulatory burden and instead view it as an opportunity for transformation.

The transition to a low-carbon economy is already underway and A&M posits that those who take a proactive stance will be the ones to benefit the most.

As Paul Aversano, Managing Director and Global Practice Leader at Alvarez & Marsal, says: “Simply put, our commitment to ESG is about doing the right thing… and adding real value for our clients.”

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