The False Promise of ESG: How Green Governance Masks Global Inequality in Neoliberal Development

Over the course of the past ten years, the Environmental, Social and Governance (ESG) framework has become the primary instrument employed by global corporate bodies and international financial institutions in various ways to transition to a sustainable economy. ESG is promoted as the practical, if not cynical, answer to social inequality and the climate crisis, the intellectual fix for capitalism whereby social change is engineered via the mechanisms of financial markets. On the whole, however, in contrast to this rosy perspective, ESG represents the new face of green neoliberalism, a mode of capitalism that uses sustainability covers to sustain market dominance and stabilize the unequal global economic order.

Neoliberalism, as theorized by David Harvey (2005), is a project aimed at restoring elite capitalist class power through deregulation, privatization, and liberalization. ESG—Environmental, Social, and Governance—frameworks represent a contemporary adaptation of this logic, cloaking market-oriented solutions in the language of sustainability. Rather than addressing systemic inequities or fostering transformative environmental change, ESG mechanisms reinforce the imperatives of capital accumulation. Their design often reflects the interests of powerful financial actors while excluding meaningful input from the Global South. The issue is not merely ESG’s ineffectiveness in catalyzing structural reform, but its role in legitimizing a global economic order that remains deeply unequal and exploitative. ESG functions as a discursive technology that aligns sustainability with market efficiency, thereby diluting its radical potential. Empirical studies underscore this: Khan et al. (2016), writing in The Accounting Review, found that firms with high ESG scores often show little substantive improvement in environmental performance. Instead, such scores are frequently used to manage reputational risk rather than effect real change. In this light, ESG becomes a mechanism for greenwashing, rebranding exploitative practices with eco-friendly rhetoric to preserve legitimacy and investor confidence.

ESG operates within an international system marked by deep structural inequities, where financial actors from developed countries continue to dominate global capital flows. As Falkner (2021) notes in Global Environmental Politics, the regulatory architecture of ESG has been shaped primarily by Northern institutions, with minimal participation from actors in the Global South. This asymmetry has significant consequences: developing countries are often excluded from shaping standards that they are nevertheless expected to meet. Their limited capacity to comply with the highly technical and resource-intensive ESG requirements has left many in a peripheral position within global green supply chains. For example, countries in Sub-Saharan Africa are frequently excluded from carbon credit markets, not because of a lack of environmental need, but due to the absence of verification systems and regulatory infrastructure (Michoud & Hafner, 2021). This dynamic entrenches dependency and curtails the agency of developing nations in defining equitable and sustainable economic transitions.

Furthermore, ESG is increasingly functioning as a new form of conditionality in development aid and investment. As Clapp and Isakson (2018) argue in Globalizations, ESG frameworks often reflect assumptions and normative values misaligned with the socio-economic realities of developing countries. Green infrastructure projects financed by multilateral institutions routinely impose rigid ESG criteria, which may unintentionally disrupt local livelihoods. The implementation of these requirements frequently prioritizes administrative compliance over participatory development, as evidenced in Indonesia’s Village Sustainable Development Goals, which have been critiqued for sidelining genuine local empowerment in favor of bureaucratic benchmarks (Anggraini, 2025). A stark example is Kenya’s Lake Turkana Wind Power project lauded globally for its renewable potential, yet widely criticized for displacing indigenous communities without adequate consultation or restitution (Renaut et al., 2023). Such cases expose the tensions at the heart of ESG governance, where technocratic environmentalism may undermine the very communities it claims to protect.

By promoting free market expansion and reinforcing the authority of international financial institution, ESG frameworks tend to facilitate green investment flows within market logics while side-lining democratic deliberation. ESG, in this context, distorts the development priorities of the Global South by constructing a global sustainability hierarchy. This hierarchy privileges countries with the technological, financial, and regulatory infrastructure to meet ESG benchmarks, rewarding them with green finance, while marginalizing nations deemed high-risk or non-compliant. For example, in 2021, South Africa became a key beneficiary of the $8.5 billion Just Energy Transition Partnership (JETP), precisely because of its capacity to align with ESG metrics and demonstrate measurable decarbonization efforts (Ordonez et al., 2024). In contrast, climate-vulnerable nations like Malawi and Chad remain excluded from similar support due to their limited institutional capacity to meet international ESG standards (McCauley et al., 2022). This disparity illustrates how ESG frameworks, rather than promoting climate justice, risk entrenching financial exclusion and reproducing longstanding global inequalities.

Joseph Stiglitz (2017) argues that neoliberal globalization has constrained the policy autonomy of developing nations, limiting their ability to chart independent developmental paths. Building on this insight, ESG frameworks reinforce a global order that prioritizes Western notions of “good governance,” often at the expense of contextual needs in the Global South. This universalizing tendency, where one-size-fits-all standards are applied across diverse sociopolitical landscapes exacerbates existing inequalities. ESG benchmarks frequently ignore local realities and institutional asymmetries, favoring capital stability over social or ecological justice. Far from being a neutral sustainability tool, ESG has evolved into a top-down governance regime that privileges corporate and technocratic interests. It consolidates elite control over environmental narratives, marginalizes grassroots participation, and mirrors broader neoliberal patterns of power centralization and accountability erosion.

As such, ESG will only be a genuine instrument for transformation if it can call into question some of the fundamental assumptions of contemporary global capitalism. It must transcend its role as a risk management framework and be framed as a collective tool for ecological justice. This requires reconstruction in which sustainability is not advanced as a commodity or corporate initiative, but as a common right for all humanity and nature. If sustainability is not conceptualized as a participative process with power sharing and equality across the planet, ESG will merely reproduce inequality in a green-washed form. Therefore, ESG reform is more than a technical project; it is an ethical and political imperative if we are to move towards a just and sustainable social order.

References

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