“I’ve had a long-held belief that business can be a powerful engine to scale positive impact,” says Andras Forgacs WG05, co-founder and director of biotech company Modern Meadow. When he started the New Jersey-based company more than a decade ago, he pledged to produce leather without cows — a revolutionary idea that meant less waste, fewer greenhouse gas emissions, and zero animal cruelty. Modern Meadow’s bio-leather, grown in the lab, was the first of its kind. Now its technology platforms are being adopted around the world so that other sustainable bio-materials can be used in products like footwear, furniture, and beauty ingredients. “A lot of innovation requires new factories to be built or processes to be designed from the ground up,” says Forgacs. “We’ve been very mindful of the fact that we don’t have endless amounts of time.” His sense of urgency is driven by his awareness of climate change — something that more and more businesses are coming to terms with lately.

There’s been a significant acceleration of environmental, social, and governance (ESG) trends and investments over the past few years. Elizabeth Seeger WG05 has 20-plus years of experience in the ESG space and realized the tone was changing on these issues in late 2019, just before the pandemic. “Investors and corporates were seeing climate, in particular, as a really significant issue that needed to be addressed through the financial system,” says Seeger. “Even though we were all facing this global crisis, the interest in dealing with really systemic risk continued to grow.” In November, Seeger will be appointed to the International Sustainability Standards Board after spending more than a decade at KKR as managing director of sustainable investing.

Illustrated portrait of Andras Forgacs.

Andras Forgacs WG05, co-founder and director, Modern Meadow

Steve Offutt WG91, an environmental specialist on the corporate responsibility team at the World Bank in D.C., is pleased to see so much happening on this front but wishes it would have started sooner. He recalls working on climate-change concerns with colleagues at the EPA back in the early 1990s. Now, with the rising costs and crises associated with extreme weather and climate-related disasters, the problems are becoming harder to ignore. “Organizations are making it public that they support investing in responsible ways,” says Offutt.

Adaptation is the new normal, like figuring out how power grids can withstand these extreme — and more frequent — weather events. “We are building resilience into our systems,” says Sunny Elebua WG06, Exelon Corporation’s senior vice president and chief strategy and sustainability officer. It’s not a one-size-fits-all approach: Although Exelon is co-headquartered in Chicago and Baltimore, the company operates in six jurisdictions, and decarbonization pathways might look different in each.

While the world has become more acutely aware of the environmental issues, the “S” in ESG has also been under intense scrutiny. Take, for example, how businesses have treated employees and other stakeholders — for better or worse — during the pandemic, and racial injustice movements that sparked initiatives on diversity, equity, and inclusion in the workplace. Companies and investors are paying attention to this uptick in social awareness and responding to the loud call for accountability. “Companies are demanding it with their supply chains, and they’re demanding it with their partners,” says Forgacs. Moreover, businesses with solid footing in ESG areas have shown resilience during the uncertainty of a crisis: BlackRock reported that investment funds for companies that were more sustainable fared better than others during the COVID-19 pandemic.

Illustrated portrait of Elizabeth Seeger.

Elizabeth Seeger WG05, board member, International Sustainability Standards Board

The past few years have also brought noticeable changes in governance. In 2019, nearly 200 CEOs of the world’s largest companies issued a statement through the Business Roundtable insisting that there’s more to business than making money. “That reflected a recent shift in thinking. In addition to serving its corporate purpose, a company also has a broader commitment to all stakeholders, including to support communities and to protect the environment,” says Genevieve Taft-Vazquez WG08, the global director of human rights and ESG at the Coca-Cola Company. Boards are being reengineered to increase diversity and reconsider executive compensation. At Wharton last November, Dean Erika James and industry experts discussed how companies are embracing purpose-driven missions in a panel called “Redefining Corporate Governance.” And this summer, the School announced the launch of a new Environmental, Social, and Governance Initiative to advance ESG issues through research, education, and practice.

All things considered, it’s not surprising that ESG investing “came of age” in 2020, according to Forbes. It’s difficult to measure just how big the ESG boom is, but the Global Impact Investing Network suggested the total market for impact investment to be around $715 billion in 2020 — and that’s low compared to other estimates. According to the Global Sustainable Investment Alliance, by the beginning of 2020, sustainable investment assets under management reached around $35 trillion. (The Rise Fund, the world’s largest private equity impact fund, delivered more than $3 billion to areas like health and decarbonization by the end of that same year.) “The pandemic accelerated consideration of issues like climate because we realized how interconnected the world is,” says Forgacs. “It was axiomatic. That brought it home for a lot of people.”

“It’s not about making trade-offs or making lower returns or making companies more politically correct,” says Elizabeth Seeger WG05.

Social investors worldwide want to find — and fund — solutions to pressing issues, whether that’s diversifying boardrooms, protecting human rights, or lowering carbon emissions. But they want to make financial gains, too. Which is to say that the increase in ESG interest has engendered a lot of confusion, especially when it comes to figuring out how policies and impacts are measured and analyzed. “We need a standardized reporting method,” says Offutt. “Some companies or investment vehicles that are reporting strong ESG may not actually be better, because they are reporting factors differently.”

Seeger has seen a lot of skepticism around the values or financial outcomes related to ESG funds. But she argues that ESG issues are business issues — and therefore should be managed as business issues. That includes integrating ESG into the investment process. “It’s not about making trade-offs or making lower returns. It’s not even about making companies more politically correct,” she says. “It’s a deep recognition that these ESG issues are posing risks to or opportunities for the enterprise value of these organizations.”

An Opportunity Awaits

The food and beverage industry is one sector where ESG interest is exploding. And within that space, many are working on a common goal: reducing food waste, which is one of the major contributors to climate change. (More than 100 billion pounds of food are wasted annually in the United States, generating a bigger carbon footprint than the airplane industry.) Wharton alumni have been tackling the crisis in diverse ways, from Brian Finkel W10, who upcycles “ugly” dates in his D’vash Organics syrups and sweeteners in Los Angeles, to the organic plant-based meal-delivery service based in Cleveland that Ray Lui W11 co-founded, called Sprinly.

More than a third of the food from U.S. farms gets wasted, and with it the four trillion tons of water used to grow it. Christine Moseley WG11, founder and CEO of Full Harvest in San Francisco, is working to change that through an online B2B marketplace for imperfect and surplus produce. Farmers — already strapped for time, money, and resources — are trying to sell their perishable products over the phone. By digitizing the produce supply chain through Full Harvest, Moseley has found a way to connect buyers and sellers more efficiently. “It’s a massive market wildly behind the times,” Moseley says of the ag space, “and there are huge underserved business opportunities.” Now, excess celery can be sent to a juicer at a discount instead of being shipped to a landfill. And those misshapen oranges? They might just be ripe for a new line of citrus IPA. The transactions are win-win-win: Farmers build incremental revenue, food companies save time and money, and there’s less food waste. In 2020, Fast Company named Full Harvest as the top “World-Changing Idea” in food.

Illustrated portrait of Steve Offutt.

Steve Offutt WG91, environmental specialist, corporate responsibility team, the World Bank

The growing movement toward corporate sustainability can be seen in the rising number of mission-driven businesses working to achieve B-Corporation status. B Lab U.S. and Canada, where Jorge Fontanez W98 is CEO, received a record-breaking number of applications in 2021. About 4,500 companies worldwide earned certification last year, a noticeable jump from 3,300 in 2020.

“If ESG is not part of your mission or strategy as a company, then you’re at risk of being irrelevant,” says Forgacs. “It’s becoming table stakes.” But with so many companies eager to avoid being left behind as ESG takes off, there’s the possibility they might not fully understand its core tenets or how to truly make real-world impact. “We’re seeing a lot of confusion over the past few years,” says Seeger, who has served as a Sustainability Accounting Standards Board member since 2017. “It’s been a real challenge to help people conceive the topic in general but also to make actual progress.” ESG perspectives might differ from, say, the U.S. to Europe, or from one investor to another. Even terminology has been tricky; conflicting interpretations of what impact investing means, for example, can cause obstacles in the marketplace. In her new role with ISSB, Seeger — whose application essay for Wharton back in 2002 was about corporate sustainability — is trying to clear up some of the confusion around the competing definitions, frameworks, and metrics.

While understanding ESG is essential, it’s only the beginning. There has to be a way to measure, and prove, a company’s claims, to prevent “greenwashing”— deliberately misleading consumers into thinking products and services are more eco-friendly than they really are. And then there’s “greenwishing” — having good intentions, but lacking the substantial results needed to fight climate change. Avoiding such pitfalls requires a complete commitment to transparency and compliance with standards.

Illustrated portrait of Christine Moseley.

Christine Moseley WG11, founder and CEO, Full Harvest

Modern Meadow, for example, published Life Cycle Assessment results in a peer-reviewed journal in February. Those results showed that its bio-leather has less negative impact on the environment than traditional leather or the conventional synthetic kind. Forgacs says publishing LCAs is important because they certify what you’ve done and, if executed thoughtfully, can also influence future innovation. In agriculture, Full Harvest created the world’s first program to verify produce that is actually rescued from waste. “As with any movement within food, you need to make sure it has integrity, so that consumers trust it,” says Moseley, explaining that collecting this type of data will better determine true ESG metrics. “It was a big step in the industry.”

Another difficulty is trying to measure the sometimes immeasurable. Taft-Vazquez explains that social issues are hard to evaluate due to the broad agenda and lack of standardized reporting. Scientific metrics might allow you to calculate things like the size of a carbon footprint, but it’s more complicated to figure out if there are enough inclusive opportunities at a company, or if someone’s rights are being infringed upon somewhere in the supply chain. But that self-reflection, says Taft-Vazquez, is still crucial, as is being challenged by investors and stakeholders: “The industry is in the throes of figuring out how to measure social impact. This is an area that is evolving and needs to evolve, so that we move from measuring inputs to measuring impact.”

Elebua explains that a key priority in his industry is to ensure that the economic and environmental benefits of clean energy are shared equally. “We cannot try to solve an environmental problem with a strategy that creates social inequities,” says Elebua. “As we move towards this net-zero future, we want to ensure that it is done equitably.” (As part of its “Path to Clean” commitment, Exelon partners with underserved and low-income communities — people who are disproportionately impacted by the effects of climate change — to make sure that all customers have access to affordable and clean energy.)

“We need a standardized reporting method,” says Steve Offutt WG91. “Some companies or investment vehicles that are reporting strong ESG may not actually be better, because they are reporting factors differently.”

Despite all these hurdles, this much is certain about ESG: Thinking about sustainability and societal consequences is a step in the right direction. When Taft-Vazquez worked at Gap Inc. in the early 2000s as a business analyst in the social responsibility department, there was general denial across the industry as to the private sector’s responsibility to tackle environmental and social issues. The pace of offshoring was accelerating in the apparel industry — along with allegations of sweatshops — and that’s when, recalls Taft-Vazquez, labor and environmental advocates started highlighting the winners and losers of globalization.

Over the past 20 years, she’s since seen the industry move from managing ESG issues to risk mitigation to where it is now: focusing on value creation and making a positive impact. “Companies are certainly at different points of maturity,” she says, “but what I love to see is that these ESG topics are getting mainstreamed into company culture instead of being the role of one single department.”

Dollars and Change

There are some economic advantages, of course, to being a company with strong ESG values. A January report by First Insight and Wharton’s Baker Retailing Center found that two-thirds of consumers will pay extra for a brand that’s better for the environment. Customers across all generations are willing to spend more for sustainability — including nearly 90 percent of Gen X.

Elebua adds that customers play a key role in how quickly we can achieve the energy transition — especially modifying behaviors toward energy choices. “Policy will set the landscape, technology will offer you the choice, and the customer will make the decision,” he says. “And they all must move in tandem to achieve meaningful impact.”

What’s more, such a company can attract employees who feel passionate about ESG priorities. And, finally, there’s the appeal of wooing investors who are keen on impact (or even just the next big thing). “There have been large amounts of funds that have raised billions for sustainability initiatives in the last couple of years,” says Moseley. “Investors go to where the next huge markets or big opportunities are.”

Illustrated portrait of Sunny Elebua.

Sunny Elebua WG06, senior vice president and chief strategy and sustainability officer, Exelon Corporation

Eco-friendly sneaker company Allbirds, which earned B-Corp status in 2016, was developed with steadfast carbon-neutral vision; its co-founder, Joey Zwillinger WG10, pledged to reduce its footprint to near zero by 2030. When Allbirds went public about a year ago, its IPO — and targeted $2.2 billion valuation at the time — proved intriguing to investors looking for a company with a sustainability mission. Allbirds shares surged 91 percent on the first day of investing, nearly doubling its valuation to more than $4 billion.

Although it’s easy to root for a green or socially responsible company, that doesn’t guarantee a return on investment. “I don’t think there’s an absolutely clear picture right now that shows that companies with strong ESG bona fides are necessarily outperforming,” says Offutt. The uncertainty, he adds, is in large part due to not having enough of the right data: “All companies put out these glossy sustainability reports, and some are truly doing wonderful things. And others are just making a really great glossy report.” Sharing specific metrics that speak to climate transition preparedness, consumer opinion, or community engagement might better flag risks and highlight opportunities.

A good idea, says Offutt, is to identify a company that excels at overall managing. Well-governed firms are good at everything — including aspects related to environmental and social performance. He adds that long-term success is dependent on whether ESG is in a company’s DNA. Instead of being guided by the triple bottom line of people, planet, and profits — or the “three-legged stool” of sustainability — companies should prioritize these goals so that the environment is at the forefront of daily decision-making.

Illustration of Genevieve Taft-Vazquez.

Genevieve Taft-Vazquez WG08, global director of human rights and ESG, the Coca-Cola Company

Forgacs explains that you can’t unlock the potential of ESG unless you couple it with a viable business model. “There’s a lot of innovation out there,” he says. “But if your only benefit is sustainability, then you’re not going to have real-world impact.” Actual change, he says, is found at the intersection of three things: the performance of the product or service; accessibility or scalability of the offering; and real, measurable sustainability.

Taft-Vazquez is optimistic that businesses are up for that challenge. “We’re going to be seeing an increase in what companies are expected to do and willingness of companies to do more,” she says. Partnerships have proven to be critical to advancing these ESG goals — including industry collaboration among peers. “The most systemic issues can’t be addressed by a single company,” says Taft-Vazquez. (To point: Coke partners with the United Nations, which has outlined 17 “Sustainable Development Goals” to serve as a blueprint for companies, and also works with the World Wildlife Fund and The Ocean Cleanup, just to name a few.)

A transition to a more sustainable economy comes with its own set of challenges, but Seeger expects that convergence around terminology and the regulatory movement should help. Furthermore, the European Union is rolling out its standards for sustainability reporting even as the SEC is proposing enhanced disclosures about ESG practices, which could be adopted in the near future. Improvement in these two areas can help companies, and investors, make more informed and more sustainable investment decisions.

“A lot of people are waking up to the urgency of climate change,” says Moseley. “They’re also realizing that future solutions for these issues could become some of the biggest companies out there.” Forgacs estimates that environmental challenges facing the world will require spending billions, if not trillions, of dollars over the next decade; by the end of the century, climate change costs could reach $2 trillion annually in the U.S. alone, according to White House analysis. Companies that can address these issues — and help others develop great business models — will offer not just a return for the environment, but a financial one as well. “Where there is an unmet need and an allocation of resources to address that need,” says Forgacs, “there is opportunity.”


Amy Downey is a freelance writer based in Allentown, Pennsylvania.

Published as “Profits and Purpose” in the Fall/Winter 2022 issue of Wharton Magazine.