Chandra   |   Senior ESG Consultant, Karisman Consulting  ·  MFin in Sustainable Finance, UIII  ·  GRI Certified Training Partner

I. THE PROBLEM WITH PERFORMING LEGITIMACY

There is a concept in organizational theory called the legitimacy gap — the distance between what society expects of an organization and what that organization actually does. For much of the last decade, ESG frameworks were designed to close this gap: to make visible the environmental, social, and governance impacts that markets had long chosen to ignore.

But something has inverted. Today, many companies are not performing ESG to close a legitimacy gap. They are performing it to create the appearance of one being closed — chasing ratings, stacking disclosures, and signaling ambitions they cannot back with action. The gap has not closed. It has been hidden behind a growing layer of reporting.

This is what Legitimacy Theory warns us about. When organizations face pressure to conform to social norms, they tend to adopt what scholars call ceremonial compliance — the form of legitimacy without the substance. ESG fatigue is the organizational burnout that results when that ceremony becomes the entire job.

II. TWO THEORETICAL FRAMES

Two foundational frameworks from management scholarship help explain both the crisis and the path forward.

Legitimacy Theory, developed by Dowling and Pfeffer and later extended by Suchman, holds that organizations survive by maintaining a social contract — by acting within the bounds of what their operating environment considers acceptable. When that contract is perceived to be at risk, organizations respond. Sometimes they respond by changing their behavior. More often, they respond by changing their communication. The theory is clear on which of these strategies holds over the long run: only substantive action generates durable legitimacy. Perception management, however sophisticated, eventually fails.

Stakeholder Theory, introduced by Freeman, offers a complementary lens. Firms create long-term value not by serving shareholders in isolation, but by managing relationships with all those who affect or are affected by the enterprise. The critical insight — one that is frequently misread — is that not all stakeholders are equally urgent at all times. Freeman never argued for a flat equality of claims. He argued for honest, ongoing attention to the stakeholder relationships that are foundational to the firm’s survival and success. That is a very different thing from treating every ESG demand as equally pressing.

Read together, these two frameworks offer a diagnosis of the current moment. ESG fatigue is what happens when companies substitute stakeholder performance for stakeholder management, and ceremonial legitimacy for substantive legitimacy. The cure is not less sustainability. It is more honesty about what sustainability actually requires.

III. THE CONTEXT: NO FRAMEWORK ANTICIPATED

The global environment in which ESG expectations were built has shifted fundamentally, and most corporate sustainability strategies have not kept pace. The geopolitical fractures of the past several years — trade conflicts, sanctions regimes, and the accelerating redrawing of supply chains — have introduced strategic uncertainty that no ESG roadmap was designed to absorb. At the same time, the macroeconomic environment has turned: rising cost of capital, tightening credit conditions, and slowing growth have made going concern a live consideration for many organizations, not a textbook concept.

Into this environment, the ESG ecosystem has continued to expand. Over six hundred rating providers now operate globally, each with distinct methodologies and near-zero inter-rater correlation. Disclosure frameworks have multiplied faster than companies can implement them. The result is a system that demands more from organizations precisely when those organizations have less capacity to deliver — and that rewards the appearance of comprehensive sustainability management over its substance.

In Indonesia, this tension is particularly acute. OJK’s proportionality principle, embedded in POJK 51, already acknowledges what theory confirms: a single ESG template cannot serve a market as diverse as Indonesia’s. The energy utility navigating the coal transition, the agricultural company managing land-use pressures, and the digital financial services firm scaling across the archipelago face fundamentally different legitimacy contexts. Treating them identically does not serve sustainability. It produces more ceremony.

IV. THE CASE FOR REFOCUSING

The answer to ESG fatigue is not retreat. It is refocusing — a disciplined return to the question of what is genuinely material to the firm’s long-term viability and to the stakeholder relationships on which that viability depends.

This distinction matters. Retreating from ESG means reducing ambition, abandoning commitments, and treating sustainability as a fair-weather priority. Refocusing means something different: it means having the intellectual honesty to distinguish between ESG activities that are strategically central and those that are performative, and directing resources accordingly. Legitimacy Theory and Stakeholder Theory both support this move. Substantive legitimacy is built through consistent, material action — not through comprehensive disclosure. Stakeholder value is created by prioritizing the relationships that are genuinely foundational — not by treating every claim as equally urgent.

What refocusing requires, in practice, is a willingness to ask hard questions. Which ESG issues are genuinely connected to this organization’s business model and long-term value creation? Which stakeholder relationships are foundational, and what do those stakeholders actually need — as opposed to what they are being told they need by a rating methodology? What does leadership genuinely believe about the future of this company and its industry, and does the sustainability strategy reflect that belief?

These are not questions that can be answered by a framework or a consultant’s template. They require the kind of strategic judgment that good leadership brings to every important business decision. Sustainability deserves the same.

V. MATERIALITY AS METHOD

A well-executed materiality assessment is the operational instrument of refocusing. Done correctly, it does far more than satisfy a disclosure requirement. It forces an organization to articulate what it believes — about its industry, its stakeholders, its sources of long-term value, and its genuine capacity for change. It produces a map of the ESG terrain that is specific to the firm, not generic to the sector.

The ISSB’s IFRS S1 standard, adopted in Indonesia as PSPK 1, centers on enterprise value materiality: the subset of sustainability information that is financially material to the firm’s own prospects. This is the right starting point. Not what a peer disclosed, not what a rating methodology requires, not what a framework recommends — but what is genuinely relevant to this organization’s future.

From materiality, strategy follows. An integrated sustainability strategy is one in which material ESG issues are treated as strategic priorities, embedded in the core business, and reflected in the allocation of resources and management attention. It is not a separate sustainability function producing separate sustainability reports. It is the business itself, run with a clear view of the risks and opportunities that matter most.

A company that has done this work occupies a fundamentally different position with its stakeholders. It can say, with evidence: here is what we believe is material to our future. Here is what we are doing about it, and why. Here is what we are not yet addressing, and when we intend to. That transparency — partial, honest, and grounded in genuine conviction — is more credible than any comprehensive but performative report.

VI. A NOTE ON WHAT THIS ASKS OF ADVISORS

For those of us in advisory roles, this reframing carries a professional obligation. The most valuable service we can offer right now is not helping clients disclose more. It is helping them think more clearly about what matters, to whom, and why.

That means being willing to tell a client that some ESG initiatives are not worth pursuing given their current position — and being specific about why. It means helping organizations articulate a stakeholder hierarchy that reflects reality, not aspiration. It means designing disclosure strategies that build genuine legitimacy over time, rather than optimizing for this year’s rating. And it means bringing the contextual intelligence that the Indonesian market requires: an understanding of the regulatory environment, the financing landscape, and the specific transition dynamics facing different sectors.

In a turbulent world, that kind of honest, grounded counsel is scarcer than any framework — and more valuable.

ESG fatigue is not a crisis of commitment. It is a crisis of legitimacy — one that both Legitimacy Theory and Stakeholder Theory predicted. The answer is not to abandon sustainability, but to anchor it in materiality, honest stakeholder prioritization, and integrated strategy built on genuine conviction. The organizations that do this work now, before the next regulatory wave and before the next geopolitical shock, will be the ones still standing, still credible, and still creating value when the environment stabilizes.

ABOUT KARISMAN CONSULTING

Karisman Consulting is a leading Indonesian sustainability advisory firm and GRI Certified Training Partner for Asia-Pacific. The firm specializes in ESG strategy, materiality assessment, sustainability disclosure, and climate risk advisory for corporations, financial institutions, and public entities. For inquiries regarding materiality assessment or integrated ESG strategy, contact us at karisman-consulting.co.id.

For organizations seeking to refocus their ESG agenda around materiality, stakeholder relevance, and long-term value creation, Karisman Consulting provides support through its Environmental, Social and Governance (ESG) advisory services, including materiality assessment, ESG strategy development, and ESG rating advocacy.

To strengthen internal capability in translating sustainability priorities into strategy and execution, Karisman Learning & Consulting also offers the Designing & Executing Corporate Sustainability Strategy and Management program. This training is designed to help organizations identify material ESG issues, develop implementation roadmaps, and embed sustainability into business strategy, governance, and performance management.

For organizations looking to strengthen ESG governance at the enterprise level, including the integration of ESG into risk management, KPIs, accountability structures, and decision-making processes, you may also refer to the Strategic ESG Governance & Enterprise-Wide ESG Management program.

For companies seeking to enhance their sustainability disclosures in line with global standards, particularly around enterprise value materiality under IFRS S1 and climate-related disclosures under IFRS S2, Karisman Learning & Consulting also offers ESG Reporting with IFRS S1 & S2 Standards.

To explore upcoming ESG and Sustainability training programs for July–August 2026, please refer to the ESG & Sustainability Training July-August Schedule 2026.

For the full list of ESG and Sustainability learning programs offered by Karisman Learning & Consulting throughout 2026, please refer to our training booklet: ESG & Sustainability Training Schedule 2026.

References

Dowling, J. & Pfeffer, J. (1975). Organizational Legitimacy: Social Values and Organizational Behavior. Pacific Sociological Review, 18(3), 122–136. Freeman, R.E. (1984). Strategic Management: A Stakeholder Approach. Pitman. Suchman, M.C. (1995). Managing Legitimacy: Strategic and Institutional Approaches. Academy of Management Review, 20(3), 571–610. Sustainability Transformations. (2025). ESG Reporting Fatigue: The Hidden Burnout Crisis in Sustainability Leadership. ESG Sustainability Directory. (2025). ESG Fatigue Phenomenon. Advance ESG. (2024). Fighting ESG Fatigue. OJK. (2017). POJK 51/POJK.03/2017 tentang Penerapan Keuangan Berkelanjutan. ISSB. (2023). IFRS S1 General Requirements / IFRS S2 Climate-related Disclosures (adopted as PSPK 1 & 2 in Indonesia).