Beyond ESG — Rethinking the Metrics that Truly Matter

Sustainability has long been a central topic in business. Investors, companies, and regulatory authorities increasingly rely on ESG criteria (Environmental, Social, Governance) to evaluate companies’ sustainability performance. What began as an ambitious attempt to integrate ecological and social responsibility into economic decisions has become a billion-dollar market today. However, ESG scores aren’t what they’re often thought to be: a reliable indicator of genuine transformation.

Credit: Elena Leya via Unsplash

ESG scores are increasingly used as an indicator of responsible business practices — both by investors and companies themselves. Yet in practice, these ratings often say little about whether a business model actually creates long-term positive change. A study by MIT Sloan (2022) [1] shows that ESG ratings from different providers often diverge significantly. A company might be considered exemplary by one provider while receiving a poor rating from another. The reasons for this are diverse:

• Lack of Standardization: There is no uniform definition of which factors should be included in ESG evaluations. Providers weight aspects like CO₂ reduction, diversity, or corporate governance differently.
• Manipulatable Reporting: Companies have an incentive to optimize their ESG data to achieve higher scores — without making substantial changes.
• Financial Market Focus Instead of System Change: ESG criteria are primarily designed to minimize risks for investors, not to measure a company’s actual positive impact.

The consequence: ESG scores can superficially suggest that a company is acting sustainably when in reality it’s only meeting certain reporting requirements — a problem already known as “greenwishing” or “ESG-washing.”

The core question remains: Do ESG scores really measure whether a company creates long-term positive change? The answer is usually no. ESG examines companies in isolation and checks whether they’re making progress in certain areas. However, many of the most urgent challenges — climate change, social inequality, biodiversity loss — are systemic problems. They cannot be solved with fragmented KPIs or individual measures but require a deeper transformation of entire industries and supply chains.

This article shows why ESG as an evaluation standard often falls short and how a systemic approach enables more effective metrics. We examine alternatives that don’t just manage business risks but make real impact measurable — from Impact-Weighted Accounting to Systemic Value Creation. Because those who want to create a regenerative economy in the long term need more than good ESG ratings — they need reliable mechanisms to measure and guide real change.

ESG as a Fig Leaf? Why Traditional Measurement Methods Are Reaching Their Limits

The integration of ESG criteria into corporate evaluations has gained significant importance in recent years. Investors and stakeholders use ESG ratings to assess companies’ sustainability performance. However, these traditional ESG measurement methods face substantial limitations that call their validity and reliability into question.

2. No Uniform Standard: ESG Scores Are Hardly Comparable

Unlike established financial metrics, ESG ratings lack standardized evaluation methods. Different rating agencies like MSCI, Sustainalytics, or RobecoSAM use their own criteria and weightings, leading to widely varying results.

A 2019 study by the MIT Sloan School of Management [2] shows that ratings from different ESG rating agencies often have little agreement with each other. While traditional credit ratings — from Moody’s and Standard & Poor’s, for instance — provide almost identical evaluations (with a correlation of 0.99), the correlation between ESG ratings from different providers averages only 0.61.

What does this mean? A correlation of 1.0 would mean that all rating agencies evaluate companies exactly the same way — which is almost the case with credit ratings. A correlation of 0.61, however, shows that ESG assessments can differ significantly depending on the provider. Thus, a company might receive a very high ESG rating from one agency while performing poorly with another. This makes it difficult for investors and stakeholders to make reliable statements about a company’s actual sustainability performance.

2. Greenwashing & “ESG-Washing”: More Appearance Than Reality

The lack of standardization opens the door for companies to create a sustainable image through clever reporting. For example, firms can focus on individual ESG criteria (such as reducing CO₂ emissions) to distract from serious deficiencies in other areas (like problematic supply chains or questionable corporate governance). A prominent example is the DWS debacle: Deutsche Bank’s investment company faced criticism in 2022 for marketing ESG funds as particularly sustainable, despite containing numerous investments in questionable companies. The case shows: A high ESG score doesn’t automatically mean that a company is actually contributing to solving global challenges.

3. Financial Market Focus Instead of Real Transformation

Originally, ESG criteria were meant to measure companies’ social responsibility. In practice, however, they often serve as risk management tools for investors, aimed at avoiding financial losses rather than proactively promoting sustainable innovations. This orientation can lead companies to take measures that improve their ESG scores in the short term without initiating long-term, transformative changes. The focus on financial performance can thus push genuine sustainability efforts into the background.

In summary, these points show that traditional ESG measurement methods often fall short in reflecting companies’ actual sustainability performance and long-term impact.

ESG: Band-Aid for Symptoms Rather Than Cure for Root Causes?

While ESG criteria are widely considered a benchmark for sustainable business practices, they often only scratch the surface and address symptoms rather than fundamental causes. This superficial approach means that while companies can show progress in certain areas, they don’t initiate deep, systemic changes.

1. Treating Symptoms Instead of Fighting Causes

A company might reduce its direct CO₂ emissions by implementing more energy-efficient technologies. At the same time, it might continue to rely on supply chains that are highly environmentally damaging, for instance through deforestation or extensive water extraction in other regions. ESG scores often primarily consider a company’s own emissions while neglecting the broader impacts along the entire value chain. This creates a distorted picture of a company’s actual ecological footprint.

2. Short-term Optimization versus Long-term Resilience

The focus on ESG scores can tempt companies to take measures that improve their ratings in the short term without promoting long-term sustainability. For example, firms might invest in projects that deliver quickly measurable results, like installing solar panels on company roofs. While such measures are positive, they might distract from urgently needed but more complex initiatives, such as transitioning to fully circular production. This short-term focus can hinder the development of strategies that ensure long-term resilience and genuine sustainability.

3. Lack of Focus on Systemic Transformation

ESG ratings often evaluate isolated corporate practices without considering how a company contributes to the transformation of entire markets or industries. A technology company might receive high ESG scores for its internal environmental standards while simultaneously developing products that promote planned obsolescence and thus increase resource consumption. Such practices oppose systemic change toward sustainable consumption, yet are often not captured within traditional ESG assessments.

An analysis by the University of Zurich (2022) [3] underscores this problem. The study shows that high ESG scores don’t necessarily correlate with actual improvement in companies’ sustainability performance. This is because ESG ratings often rely on easily measurable, superficial indicators while ignoring deep, transformative measures. The researchers emphasize the need to develop assessment metrics that adequately capture a company’s actual impact and contribution to systemic changes.

Thus, ESG measurements often remain superficial and miss their actual purpose: promoting transformation toward genuine sustainability. But what would be the alternative? Which metrics can actually make long-term, regenerative impact measurable? In the next section, we examine new, systemic approaches that go beyond ESG.

New Measurement Methods: Economy in Harmony with Planetary Boundaries

If ESG scores don’t capture systemic change, we need new metrics that go beyond short-term optimization. Instead of just minimizing risks for investors, companies must actively contribute to restoring ecological and social systems. This approach — often called Systemic Value Creation — goes beyond reducing negative effects and asks: Does the company create measurable long-term value for the environment, society, and economy?

From “Less Bad” to Regenerative Business Models

Until now, ESG’s focus has been on limiting damage — fewer emissions, less resource consumption, better governance. But that’s not enough. Companies must ask themselves: How can we actively contribute to solving global challenges?

One example is Interface, a manufacturer of modular carpet tiles that has transformed from a linear to a regenerative business model. Instead of just reducing CO₂ emissions, the company has rebuilt its entire business model to actively sequester carbon from the atmosphere — a concept known as Climate Positive Business.

Impact-Weighted Accounts and True Cost Accounting (TCA): Making True Costs and Values Visible

Another problem with traditional ESG metrics is that they often only evaluate individual measures without capturing a company’s systemic impacts. A low-emission company might still reinforce social inequality by exploiting its suppliers.

The Impact-Weighted Accounts Initiative (IWAI) of Harvard Business School addresses exactly this. Its goal: Express a company’s actual social, environmental, and economic influence in financial metrics. This means that not only revenue and profit but also hidden costs (= True Costs (TC)) or positive contributions flow into the balance sheet.

An IWAI analysis [4] of 1,800 companies showed that many companies that are profitable by traditional financial metrics cause significant negative external effects — through pollution or poor working conditions, for example. If these hidden costs were considered in company valuations, the ranking of many “sustainable” companies would drastically worsen. Conversely, companies with positive systemic impact benefit because they generate long-term value creation.

The concept of Impact-Weighted Accounts is gaining importance as it bridges classical financial reporting and real impact measurement. An example: Conventional agriculture causes soil degradation, water pollution, and CO₂ emissions — costs borne by society. If these damages were included in balance sheets, regenerative farming operations would be significantly more economically competitive.

Companies like Unilever and Danone are already experimenting with such methods like TCA to align their economic decisions with real societal and ecological costs long-term.

Doughnut Economics: Beyond Growth at Any Cost

If classical ESG metrics aren’t sufficient to capture a company’s long-term influence on society and environment, we need new models that consider systemic interactions.

Kate Raworth’s Doughnut Economics model questions the classical growth paradigm. Instead of just looking at GDP or corporate profits, it defines economic success as the balance between social minimum standards and ecological boundaries.

Visually, Raworth presents this idea as a doughnut:

• The inner circle describes the social foundation — basic needs like education, healthcare, and dignified work.
• The outer circle marks planetary boundaries — ecological limits like climate change, biodiversity, or water usage.
• Between them lies the safe and just operating space for economy and society.

For companies, this means: Don’t just minimize, but regenerate. A company that saves water but continues to produce in a water-scarce area remains outside the doughnut. Only when it actively stores or purifies water does it contribute to system resilience.

Long-term Value Creation Needs New Financing Models

Another weakness of traditional ESG measurements is their focus on short-term optimization. But real transformation doesn’t happen in quarterly reports — it needs time and forward-thinking capital.

LTSE: A Stock Exchange Model for Long-term Sustainability

One example of an alternative to short-term financing models is the Long-Term Stock Exchange (LTSE), founded by Eric Ries (author of The Lean Startup). LTSE is designed to support companies that create long-term value rather than bowing to the pressure of short-term profit maximization.

LTSE companies commit to certain principles, including:

• Long-term decision-making instead of short-term shareholder value
• Stakeholder inclusion, considering employees, customers, and society
• Measurable sustainability commitments that go beyond traditional ESG criteria

Tech and impact companies like Asana and Twilio have already committed to LTSE standards. The model shows that capital markets can be oriented toward long-term value creation — a desperately needed alternative to common practices on traditional exchanges.

Zebras Unite: A Counterweight to Unicorn Growth Pressure

While traditional venture capital financing focuses on lightning-fast scaling and exits, impact startups often need Patient Capital — capital that’s available long-term and doesn’t push for quick profits.

The Zebras Unite movement consciously opposes the unicorn model and instead promotes sustainable business models with the following principles:

• Profit & Purpose are equal — economic success must go hand in hand with societal benefit
• Slow, stable growth instead of hyper-scaling
• Cooperation instead of competition — focus on collaboration between companies with similar goals

Zebras Unite offers a network of investors and entrepreneurs seeking alternative financing models — for example, cooperative ownership structures or revenue-based financing. Companies like Sharetribe or Purpose Economy show that this model can be a functioning alternative to traditional VC financing.

These alternative models show that business needs to be rethought. Companies that only orient themselves to traditional ESG KPIs risk overlooking systemic impacts. Those who instead use measurement methods that consider planetary boundaries and social justice actively contribute to market transformation — and secure their own long-term business success.

How the Startup Ecosystem Must Redefine Its Evaluation Standards

The traditional focus on ESG criteria (Environmental, Social, Governance) falls short when measuring startups’ actual influence on environment and society. For actors in the startup ecosystem, particularly accelerators and venture capital providers, this means fundamentally rethinking their evaluation models.

From Superficial ESG Criteria to Real Impact Measurement

Instead of ESG checklists, investors and support programs should center their evaluation on a startup’s actual systemic influence. The question is whether a young company can sustainably transform entire markets or merely addresses specific problems. This systemic scalability determines whether a startup can be relevant and effective long-term.

New due diligence criteria should therefore consider not only financial metrics and short-term growth forecasts but also the business model’s long-term resilience and systemic relevance. Investors applying this expanded evaluation framework can not only future-proof their portfolio but also actively contribute to solving global challenges.

The Impact on Founders and Startups

For founders, this paradigm shift means developing metrics that measure their real impact from the start. It’s no longer enough to merely present traditional KPIs like revenue growth or user numbers. Instead, they should demonstrate how their product or service effects positive changes at societal or ecological levels.

Examples like Patagonia, Fairphone, or Ecosia show that companies thinking beyond conventional ESG criteria and aiming for systemic changes can achieve not only greater impact but also economic success. These companies have understood how to consistently center their mission and thereby convince both customers and investors.

Moreover, regulatory developments like the Corporate Sustainability Reporting Directive (CSRD) in the EU set new standards for sustainability performance reporting. Startups implementing robust and transparent impact measurements early are better equipped to meet these requirements and secure a competitive advantage.

A report by the Global Impact Investing Network (GIIN) (2024) [5] underlines this trend: More and more investors are shifting their focus from traditional ESG ratings to impact-driven metrics that measure a company’s actual contribution to sustainable development. This shows that the market is transitioning toward authentic and measurable impact.

For the startup ecosystem, this means both investors and founders must be ready to take new approaches in evaluating and presenting company values. Only this way can we ensure that innovations bring not only economic success but also make a real, positive contribution to society and environment.

How COSMICGOLD Rethinks Impact Measurement

Young companies don’t have long track records or stable processes to compare themselves with established companies. But even comparison among themselves is difficult: Startups operate at different development stages, with varying business models and technologies, making standardized evaluations challenging. A deep-tech startup with long research cycles and high CapEx requirements can’t be measured by the same criteria as a digital business model with rapid scalability. Nevertheless, startups must make their actual impact measurable from the start — not just for investors, but also for long-term scalability and market relevance.

Practice-Oriented Impact Measurement for Startups

This is exactly where COSMICGOLD comes in: To close this gap, we contributed to developing DIN SPEC 90051–1 [6] — a standardized evaluation system specifically for startups. This practical tool allows founders to analyze their potential and real sustainability impacts in a structured way, without being forced into complex ESG reporting requirements of large companies. It’s not just about ecological factors, but a holistic view of a company’s value creation system.

Startups working with us integrate this model early in their strategy development to ensure their business models are both sustainable and economically viable:

1. Our Impact-Driven Venture Design Approach: As part of our Venture Studio Services, we found and develop our Portfolio Companies to combine regenerative business models with technological excellence. We work closely with scientists, engineers, and industry experts to transform deep-tech innovations into market-viable companies. Our Portfolio Companies are built from the start with impact measurement and sustainable scaling as part of their DNA.
   To support this process, we’ve developed the Regenerative Business Design Toolkit — a practice-oriented framework helping founders and innovators think systemically about their business models from the start and integrate sustainable value creation. The toolkit is freely available and offers structured methods to effectively develop and implement regenerative strategies.
2. In our Impact Acceleration Program: Besides building our own startups, we also support external founding teams through targeted programs. We don’t just rely on classic Lean Startup and go-to-market methods, but combine these with systemic impact measurement and regenerative business model designs. Our approach includes:
   - Regenerative Business Model Canvas: Instead of just testing product-market fit, we help startups define their long-term contribution to transforming entire industries toward regenerative approaches.
   - Impact Due Diligence for Founders: We ask not only about revenue potential but also about social and ecological resilience — a criterion increasingly demanded by investors.
   - Integration of DIN SPEC 90051–1 into financing strategy among other things: Startups working with us can early on prove their impact with reliable metrics, securing an advantage in negotiations with impact investors.

This is how we help startups use impact not as a marketing phrase but as a measurable success factor.

From ESG to Real Impact: Why We Must Change the Paradigm

The conclusion is clear: ESG ratings aren’t a reliable indicator of real change. They often measure the wrong things, set wrong incentives, and lead companies to fight symptoms rather than causes. But this doesn’t mean impact measurement is impossible — we just need to think about it fundamentally differently.

A sustainable economic system requires metrics that don’t just minimize risks for investors but capture real added value for environment, society, and economy. This means we must think beyond pure ESG score optimizations toward systemic value creation. Startups, investors, and ecosystem partners should adapt their evaluation models to make visible not just short-term sustainability measures but also long-term transformations.

At COSMICGOLD, this is exactly where we focus. Through our work on DIN SPEC 90051–1, our Impact Acceleration Program, and within our Venture Studio Services for Portfolio Companies, we’re creating new ways for startups to make their impact measurable. We help founders use impact measurement not as a reporting obligation but as a strategic management element — thereby not only convincing investors but initiating real market changes.

The rethinking begins now. The question is: Do we stay stuck in old structures — or do we shape an economic system that truly has a future?

Sources:
[1] https://mitsloan.mit.edu/ideas-made-to-matter/why-sustainable-business-needs-better-esg-ratings
[2] https://mitsloan.mit.edu/ideas-made-to-matter/why-esg-ratings-vary-so-widely-and-what-you-can-do-about-it
[3] https://arxiv.org/abs/2106.15466
[4] https://www.hbs.edu/faculty/Pages/item.aspx?num=59129
[5] https://thegiin.org/publication/research/sizing-the-impact-investing-market-2024/
[6] https://www.dinmedia.de/en/technical-rule/din-spec-90051-1/329926946