Dear CIOs – ESG is in our job description | Opinion Pieces

In his first regular column for IPE, Dan Mikulskis, the CIO at the provider of the £40bn (€46bn) DC master trust People’s Pension, sets out how a shift from persuasion to enablement is needed for CIOs to lead the next phase of ESG effectively

For much of the past decade, ESG investing has enjoyed its moment in the spotlight. Assets surged, disclosures multiplied, and institutions raced to demonstrate alignment with an increasingly standardised set of environmental, social and governance metrics. For chief investment officers “going with the flow” was often seen as fairly easy.

Today, that confidence is being tested. ESG is not disappearing, but it is undergoing a necessary and overdue sharpening. And it is CIOs, not marketing teams or policy advocates, who now need to lead that evolution.

The roots of the current moment lie in how ESG has developed. In the mid-2010s, investors faced a plausible and widely shared assumption: that climate policy would tighten inexorably, repricing carbon-intensive assets and rewarding those aligned with a lower-carbon future. Portfolio-level targets – net zero commitments, emissions pathways, exclusions – emerged as rational responses to that risk.

But over time, this top-down approach hardened into something else. An ESG-reporting “industrial complex” developed, built around standardised metrics, disclosure frameworks and target-setting. Measurement became an end in itself. “What gets measured, gets managed” became “what gets measured, gets reported”.

Meanwhile, the expected policy pathway proved uneven and politically contested. The business case for decarbonisation, once presented as inevitable, turned out to be far more variable across sectors and time horizons. Critically, the relationship between ESG alignment and financial performance became less straightforward.

Take Ørsted. Once held up as the archetypal success story of the energy transition and a model for other energy company boards, its share price has fallen by 75% since January 2021, culminating in capital challenges and partial state-backed stabilisation. US energy companies – mainly fossil fuel names – underperformed the S&P 500 by 80% during the final five years of the 2010s but have since outperformed it by more than 100% cumulatively since the Ukraine war began in February 2022.

“RI teams must evolve from advocates or data providers into genuine enablers of investment judgement”

Management teams and boards are not irrational; they respond to incentives. And those incentives have not always aligned with ESG narratives.

This is the first key realisation for CIOs: ESG is not a free lunch. It involves trade-offs. Reducing one risk – climate exposure, for example – may increase another, such as tracking error or foregone return. For too long, these trade-offs have been obscured by “win‑winism,” or an overemphasis on the moral case. This realisation may come as a relief and now needs to be front and centre.

The second realisation is that the framing of ESG has become counterproductive. The language of “crisis” and “emergency”, while emotionally compelling, is poorly suited to long-term structural change and encourages short-termism – the very behaviour ESG is meant to counteract.

None of this, however, diminishes the underlying issue. The global economy remains fundamentally unsustainable in its current form. That should not be a controversial observation. The performance of the investments we oversee is downstream from the economy and the financial system. Market failures persist, allowing companies to externalise vast environmental and social costs while making big profits. This is not a moral argument; it is a core reality of free markets. Responsible asset owners should not ignore it, and in fact need to face up to it.

But acknowledging market failure is different from assuming markets will correct it on any given timeline.

This is where a more grounded perspective is emerging. As data scientist and author Hannah Ritchie argues in ‘Not the End of the World’, long-term progress on environmental issues has historically been real and meaningful. Air pollution, for example, has been dramatically reduced across developed economies. Global per capita emissions may already be peaking or declining. Progress is possible, but it is uneven, non-linear, and often slower than hoped.

Similarly, the work of Alex Edmans is instructive. His central argument – that “ESG is both extremely important and nothing special” – cuts through much of the noise. ESG factors matter where they are financially material. They should be analysed with the same discipline as any other investment consideration. They are not a separate asset class, nor a uniquely special factor that overrides all others.

This is the intellectual foundation for the next phase of ESG.

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For CIOs to lead this next phase effectively and become true “critical friends of ESG”, responsible investment teams must evolve from advocates or data providers into genuine enablers of investment judgment. Too often ESG has been filtered to CIOs through aggregated scores, moral narratives or compliance‑led reporting that obscure rather than illuminate decision‑making.

The change required is not more information, but better integration: framing ESG issues explicitly in terms of risk, uncertainty and trade‑offs, surfacing how they affect capital allocation, portfolio resilience and long‑term return prospects. When responsible investment teams focus on synthesising insights, clarifying where evidence is strong or weak, and articulating the implications of different choices, they empower CIOs to own ESG as part of core investment practice rather than as something delegated or defended.

Disciplined implementation

That shift – from persuasion to enablement – is what allows CIOs to move ESG out of ideology and into disciplined implementation. Here’s the playbook: