By Vanguard Enterprise Intelligence Unit with the work of Robert G. Eccles, George Serafeim, Ioannis Ioannou, Alison Taylor, and Baruch Lev.

For years, ESG carried an expansive promise. It suggested that environmental, social, and governance priorities could be integrated into corporate strategy, capital markets, risk management, and stakeholder trust. At its best, the idea was not cosmetic. It was an attempt to measure whether companies were prepared for a world shaped by climate risk, social instability, labor scrutiny, resource constraints, governance failures, and shifting expectations of corporate responsibility.

But by 2026, ESG has entered a more complicated phase. The term itself has become politically contested, legally sensitive, and commercially uneven. Some companies have retreated from public sustainability language. Others continue to issue ambitious claims that are difficult to substantiate. Investors remain interested in material sustainability risks, but many are less patient with vague commitments. Regulators are tightening some disclosure expectations while simplifying others. Customers want proof. Employees want consistency. Boards want programs that can survive scrutiny.

This is not the end of ESG. It is the end of ESG as rhetoric.

The next phase will be defined by responsible accountability. Companies will still need to manage climate exposure, human rights risk, governance quality, supply-chain integrity, workforce expectations, AI ethics, circular economy pressures, and long-term stakeholder trust. But they will need to do so with fewer slogans and more evidence. The question is no longer whether a company can describe itself as responsible. The question is whether responsibility has been built into decision-making.

That distinction is now strategic. Companies that recalibrate ESG around material risk, measurable performance, and operational discipline will be better positioned to create durable value. Companies that treat ESG as a communications exercise will face a double risk: accusations of greenwashing when they say too much, and suspicion of greenhushing when they say too little.

The End of Performative ESG

The first major ESG mistake was overstatement. Companies made broad sustainability claims, announced distant targets, published polished reports, and adopted purpose language that often moved faster than the underlying operating model. In some cases, commitments were sincere but underdeveloped. In others, ESG became a branding layer placed over business as usual.

The backlash was predictable. Stakeholders began asking harder questions. Were emissions actually falling, or merely offset? Were supply chains improving, or merely audited? Were diversity goals changing leadership pipelines, or only recruitment language? Were companies addressing human rights risks, or simply publishing supplier codes of conduct? Were boards integrating ESG into capital allocation, or assigning it to a committee and moving on?

The second mistake is now emerging: retreat. Faced with legal, political, and reputational scrutiny, many companies have reduced public ESG language. Some call it prudence. Others call it greenhushing. Either way, the risk is that companies confuse quieter communication with better strategy. Saying less may reduce short-term controversy, but it does not reduce climate risk, supply-chain exposure, workforce distrust, regulatory obligations, or investor demands for material information.

The better answer is not louder ESG. It is more disciplined ESG. Companies should move away from broad claims and toward specific, evidenced, decision-relevant accountability. They should say what they are doing, what they can measure, what remains uncertain, where progress is uneven, and how sustainability priorities connect to business value.

Credibility now matters more than ambition.

From ESG Identity to Business Materiality

One reason ESG became vulnerable is that it was often treated as an identity. Companies wanted to be seen as ESG leaders. Funds wanted ESG labels. Executives wanted sustainability credentials. Public language sometimes became detached from the harder question of materiality: which environmental, social, and governance issues actually affect the company’s risk, performance, license to operate, and long-term strategy?

The recalibration of 2026 requires a return to materiality. For an energy company, this may mean methane management, capital transition risk, safety, community impact, and regulatory exposure. For a technology company, it may mean AI ethics, data privacy, energy use, labor practices, content integrity, and geopolitical compliance. For a manufacturer, it may mean supply-chain resilience, circular design, worker safety, emissions intensity, and critical-material dependency. For a financial institution, it may mean climate risk in portfolios, fair lending, governance controls, cybersecurity, and exposure to corruption or sanctions.

The point is not that every company must emphasize the same ESG issues. The point is that each company must be able to explain why its chosen issues matter. Responsible accountability begins when ESG moves from external positioning to internal prioritization.

This shift also protects companies from ideological whiplash. If ESG is framed as a political identity, it becomes vulnerable to political cycles. If it is framed as material risk management and long-term value creation, it becomes harder to dismiss. A company does not need to use fashionable terminology to understand that water scarcity can disrupt operations, that forced labor can destroy trust, that poor governance can create liability, or that weak cybersecurity can damage customers and shareholders.

The companies that get this right will speak less in abstractions and more in business logic.

The Greenwashing-Greenhushing Trap

Executives now face a difficult communications dilemma. If they make strong sustainability claims, they may be accused of greenwashing. If they avoid discussing sustainability, they may be accused of hiding. This is the greenwashing-greenhushing trap.

The way out is evidence. Companies should not communicate more than they can support, but they should not communicate so little that stakeholders cannot assess performance. The standard should be neither promotional nor silent. It should be accountable.

That requires stronger data. ESG claims must be tied to actual metrics, verified processes, operational changes, and time-bound commitments. If a company claims progress on emissions, it should be clear which scopes are included, what methodology was used, whether reductions are absolute or intensity-based, and how offsets are treated. If it claims supply-chain responsibility, it should explain how risk is mapped, how suppliers are evaluated, how worker concerns are identified, and what happens when problems are found. If it claims circular economy progress, it should distinguish between recyclable design, actual recovery rates, reuse systems, repairability, material reduction, and end-of-life accountability.

The harder the claim, the stronger the proof must be.

This does not mean companies should pretend they have solved everything. In fact, credible ESG communication often becomes stronger when it acknowledges limitations. Investors and stakeholders increasingly understand that sustainability transformation is difficult. They do not necessarily expect perfection. They expect seriousness. They expect companies to know where the gaps are and to show how those gaps are being addressed.

The companies that communicate with discipline will build trust. The companies that communicate with slogans will invite scrutiny.

AI and the New ESG Infrastructure

Artificial intelligence is becoming part of ESG in two distinct ways. First, AI is a tool for ESG management. It can help companies process large volumes of sustainability data, detect inconsistencies in reports, monitor supply-chain risk, analyze satellite imagery, track emissions, identify anomalies, and interpret unstructured documents. Used well, AI can make ESG programs more dynamic, more timely, and more precise.

Second, AI is itself an ESG issue. Its environmental footprint, data-center energy demands, water usage, labor implications, privacy risks, bias concerns, misinformation potential, and governance challenges are now part of responsible business. A company cannot use AI to improve ESG reporting while ignoring the sustainability and social risks created by AI infrastructure and deployment.

This dual role requires careful leadership. AI can improve ESG accountability, but it can also produce false confidence. Automated reporting can generate polished disclosures without improving underlying performance. AI models can rely on incomplete data, inconsistent assumptions, or proxy estimates that appear more precise than they are. If widely adopted, similar tools may also homogenize analysis, causing companies and investors to converge around the same blind spots.

Human oversight remains essential. ESG data is not merely technical. It involves judgment about boundaries, relevance, severity, tradeoffs, and stakeholder impact. AI can identify patterns, but leaders must decide what matters. AI can flag inconsistency, but humans must interpret context. AI can accelerate reporting, but governance must ensure that reports reflect real outcomes rather than automated language.

The responsible use of AI in ESG should therefore follow a clear principle: use technology to improve visibility, not to outsource accountability.

The Circular Economy Test

The circular economy is another area where ESG must move from rhetoric to execution. For years, companies have spoken about recycling, waste reduction, product stewardship, and circular design. But circularity is not achieved through packaging language. It requires changes in product design, materials, logistics, customer behavior, supplier relationships, repair systems, take-back models, and economics.

Circular economy demands are rising because the linear model of production is increasingly exposed. Companies face material scarcity, waste regulation, consumer pressure, landfill constraints, and emissions concerns tied to extraction and production. In many sectors, the question is no longer whether waste can be reduced at the margin. It is whether business models can be redesigned around reuse, repair, refurbishment, remanufacturing, and material recovery.

This is difficult because circularity often challenges the revenue logic of traditional consumption. A product that lasts longer may reduce replacement sales. A repairable product may require new service infrastructure. A take-back model may shift costs back to the company. Recycled materials may introduce quality, supply, or pricing challenges. Circular design requires coordination across procurement, product development, operations, marketing, finance, and customer experience.

That is why circular economy programs should be evaluated as strategic systems, not isolated sustainability initiatives. Leaders should ask whether circularity reduces input risk, strengthens customer loyalty, lowers lifetime cost, improves regulatory readiness, opens service revenue, or differentiates the brand. When circularity creates real business value, it becomes more durable. When it is treated as a campaign, it fades when budgets tighten.

Responsible accountability means measuring circularity honestly. Companies should track not only what is technically recyclable, but what is actually collected, reused, repaired, refurbished, or recovered. They should avoid confusing good intentions with material outcomes.

Investor Expectations Are Changing

Investor expectations around ESG are becoming more selective. Many investors are less interested in broad ESG branding and more interested in financially relevant sustainability information. They want to know which risks are material, how they are governed, whether management incentives align with stated priorities, and whether sustainability initiatives contribute to resilience, efficiency, growth, or risk reduction.

This is a maturation, not a disappearance. The language may change. The underlying concerns remain. Climate risk, health, AI ethics, privacy, human rights, corruption, supply-chain resilience, and governance quality are not going away because the ESG label becomes controversial. Investors still need to understand how companies are positioned for long-term disruption.

The best companies will therefore present sustainability as part of capital discipline. They will show how ESG priorities affect strategy, not just reputation. They will connect energy efficiency to cost and resilience. They will connect workforce investment to retention and productivity. They will connect governance quality to risk reduction. They will connect circular design to material security. They will connect responsible AI to trust and regulatory readiness.

This does not mean every ESG initiative must produce immediate financial returns. Some responsibilities exist because the company has obligations to workers, communities, customers, and society. But for ESG to survive scrutiny inside the enterprise, leaders must understand and explain how ethical sustainability supports long-term value.

The investor audience is not asking for poetry. It is asking for proof.

Responsible Accountability as an Operating Model

ESG recalibration requires an operating model. The first step is governance. Sustainability cannot sit only in a communications function or a small ESG team. It must be connected to the board, executive leadership, risk management, finance, legal, operations, procurement, technology, and human resources. The issues are too material and too interconnected to be managed as a side function.

The second step is materiality. Companies should identify the environmental, social, and governance issues most relevant to their business model, stakeholders, and risk profile. This process should be evidence-based, not trend-driven. It should distinguish between issues that are reputationally visible and issues that are strategically consequential.

The third step is measurement. ESG programs must define what success means. That requires metrics, baselines, owners, timelines, and controls. Measurement should not be limited to what is easiest to report. It should focus on what is most important to manage.

The fourth step is integration. ESG priorities should affect business decisions. Procurement should reflect supply-chain standards. Capital allocation should consider transition risk and resilience. Product design should account for circularity and lifecycle impact. AI deployment should include ethical and environmental oversight. Incentives should reflect not only short-term financial outcomes, but the quality and sustainability of performance.

The fifth step is communication. Companies should speak with precision. They should avoid exaggerated claims, unsupported labels, and vague virtue language. They should communicate progress and limitations with enough detail for stakeholders to judge credibility.

The final step is learning. ESG risks change. Regulation changes. Technology changes. Stakeholder expectations change. A credible ESG program must adapt. Responsible accountability is not a report. It is a continuous management discipline.

The Leadership Agenda

Leaders should begin by retiring the idea that ESG is primarily a branding issue. The brand may benefit from credible sustainability performance, but the work must begin elsewhere: risk, operations, governance, and strategy. If sustainability lives mainly in messaging, the company is vulnerable.

Executives should also review their public claims. Any statement that cannot be supported by evidence should be narrowed, clarified, or removed. This is not retreat. It is discipline. The strongest sustainability communication is not the most ambitious. It is the most trustworthy.

Boards should require management to distinguish between ESG activity and ESG impact. Activity includes reports published, initiatives launched, policies adopted, and meetings held. Impact includes emissions reduced, waste avoided, workers protected, risks mitigated, customer trust strengthened, and capital decisions improved. The difference is essential.

Companies should also build AI oversight into ESG processes. AI may improve reporting and risk detection, but it must be governed. Leaders should know where AI is being used in ESG analysis, which data it relies on, what assumptions it makes, who reviews its outputs, and how errors are corrected.

Finally, executives should make ESG resilient to political cycles. That means grounding programs in business materiality, legal obligations, operational risk, stakeholder trust, and long-term value. A program built on slogans will not survive polarization. A program built on responsible accountability can.

The Real Recalibration

The future of ESG will not be defined by whether the acronym remains popular. It will be defined by whether companies can manage environmental, social, and governance realities with discipline. Climate exposure, human rights risk, circular economy pressures, AI ethics, workforce trust, corruption, privacy, and governance quality will remain business issues regardless of what they are called.

The companies that fail will either overstate or retreat. They will publish claims they cannot support or say little while internal discipline weakens. They will treat ESG as reputational theater when markets reward it and political liability when markets punish it.

The companies that succeed will take a more durable path. They will recalibrate from rhetoric to accountability. They will measure what matters, govern what they measure, and communicate only what they can defend. They will integrate sustainability into capital allocation, supply-chain decisions, product design, AI governance, and leadership incentives. They will understand that ethical sustainability is not separate from performance. It is part of how performance becomes credible.

In 2026, ESG is not disappearing. It is being tested.

The leaders who pass that test will not be the ones with the loudest commitments. They will be the ones whose commitments can withstand scrutiny.