The backlash against environmental, social, and governance in the United States: A resource-based view

While interest in environmental, social, and governance (ESG) investments and initiatives has remained strong in Europe, it has collapsed in the United States (U.S.). This paper argues that the reason for the backlash is that most ESG investments lack the potential to sustain a competitive advantage and, consequently, have fallen under legal and political attack. We review the literature on the relationship between ESG and corporate financial performance (CFP) and conclude that the results are inconsistent and, in some cases, indicate a negative relationship. The purpose of this paper is to identify the source of the inconsistency and introduce a framework for evaluating ESG initiatives. We describe several approaches to ESG, including “greenwashing”, “borrowed virtue”, and “bureaucratic ESG”, and contrast these with “strategic ESG”. We rely on the resource-based view (RBV) of the firm (Barney, 1991, 2018) to develop the circumstances under which corporate ESG programs have the potential to sustain a competitive advantage and qualify as “strategic ESG”. We conclude that ESG investments that are imitable cannot provide a basis for sustainable competitive advantage. Only by leveraging valuable, rare, imperfectly imitable, and non-substitutable resources can an ESG initiative sustain a competitive advantage and superior financial performance.