The ESG ROI reckoning is coming
By Stefan Padfield
web posted November 24, 2025
There are myriad red flags that corporations have been investing in ESG, which includes DEI, without properly assessing net present value (NPV) or return on investment (ROI), even though NPV and ROI calculations should be the starting point for any corporate decision-making. For example, an article in the Harvard Business Review noted a few years ago that "before anyone writes a check, you need to calculate the return on investment (ROI) by comparing the expected benefits with the costs."
Importantly, if corporations do not base their ESG and DEI investments on traditional NPV and ROI calculations, they have the potential to be held accountable for numerous infractions, including breach of duty of care, breach of duty of loyalty, breach of duty of oversight, breach of duty of candor, securities fraud and consumer fraud. Let's unpack that.
First, corporate managers have a fiduciary duty to make fully informed decisions, and it is arguably impossible to defend a corporate decision as fully informed if there was not even an attempt to assess NPV or ROI. And the signs that this omission is rampant are everywhere. Read almost any corporate ESG report and there will likely be no mention of ROI. Of course, there are decisions that can't be boiled down to NPV or ROI. But even in those cases, corporations should be clear about how they concluded NPV and ROI analysis was impossible or too costly.
Second, there are good reasons to believe that if NPV and ROI assessments were made, they would not support the ESG/DEI initiatives. For example, Alex Edmans, Professor of Finance at London Business School, has noted that: "There is no link between demographic diversity and performance, despite many flimsy reports claiming the contrary…. Indeed, the evidence is that quota-driven demographic diversity reduces performance." (Not to mention setting corporations up for million-dollar discrimination claims.) Meanwhile, net zero commitments may be utterly utopian.
Third, if corporate managers are consciously disregarding their duty to make fully informed decisions when it comes to adopting ESG and DEI initiatives, then they are arguably not only breaching the duty of care that governs information gathering but also acting in bad faith. A breach of the duty of good faith is much more serious than a breach of the duty of care. This is so because breaches of the duty of care can often be immunized or insured while the bad faith conduct typically cannot be similarly protected. And this still leaves potential breaches of the duty of oversight and candor, the former being specifically targeted at the board of directors.
Fourth, a failure to properly inform ESG and DEI decision-making not only implicates corporate law breaches of duty, but also potentially violations of federal securities law disclosure regimes as well as consumer fraud laws. Specifically, if corporate talking heads are walking around assuring investors and consumers that the company's ESG and DEI initiatives are good for business, they must have a good basis for so concluding or else may be found to have been misleading listeners.
Fifth, all this also implicates the Big 5 asset managers and proxy advisors. If they are pushing corporations to adopt ESG and DEI initiatives (see here and here) without the proper underlying financial analysis, then they may also be liable for breaching duties to their shareholders, or misleading their clients, or even engaging in a conspiracy to defraud others in an effort to boost profits derived from selling ESG funds and ESG consulting services.
All the foregoing explains why this shareholder proposal season my employer, the National Center for Public Policy Research, where I work as the Executive Director of the Free Enterprise Project, plans to file numerous proposals asking or requiring corporations to come clean on the extent to which they have based their ESG and DEI initiatives on NPV and ROI. Without naming names, I can tell you that this process has already begun and the optics for implicated corporations are not good so far. One corporation's proposed response to our DEI ROI proposal could not even manage to reference ROI in its opposition, preferring instead to handwave the endless empty platitudes we've grown so used to hearing in defense of DEI.
So, rest assured, the ESG ROI reckoning is coming. 
Stefan Padfield is Director of the Free Enterprise Project at the National Center for Public Policy Research. This was first published at RealClearMarkets.
