Managing the ESG Backlash: Why Value Matters More than Values
But today, a politically driven backlash to sustainability has left some businesses rethinking their approach. Corporations find themselves caught between two opposing forces and left wondering how to navigate the challenges. What they overlook is that the key to salvaging ESG may be found in understanding the arguments against it.
Where it All Began
If one could pinpoint a moment in time when ESG issues moved into the mainstream of the business world, late 2015 would make sense.
The concept of “ESG” had been developing for many years prior to Paris, led by NGOs and socially responsible investors who pushed companies to look at how non-financial metrics may have a material impact on companies and therefore should be properly managed and disclosed. But in the years after 2015, ESG moved to center stage. Sustainability reports became the norm, BlackRock asked companies to articulate a societal purpose and the World Economic Forum issued a manifesto on stakeholder capitalism.
The Backlash Begins
Value vs. Values
The central thesis of their argument is that corporations are too focused on advancing a “woke” agenda rather than on maximizing shareholder value. This argument raises more than just reputational concerns for companies who are legally bound to their fiduciary duty. Supporters of the ESG movement argue that their interests are material, not ideological. Addressing issues like climate change, they say, is a matter of long-term risk management.
But the anti-ESG argument lays bare a vulnerability many companies are discovering. Businesses are touting their embrace of ESG, but they are failing to effectively communicate its benefit to the bottom line. In simple terms, it’s about value vs. values. Reconciling the gap between these two can help companies navigate the storm without throwing ESG overboard.
Because when it comes to ESG, companies have done great work articulating their values. This includes talking about being a good environmental steward, prioritizing diversity and inclusion, supporting human rights, and addressing gender inequities. Companies speak of fairness, justice and building a business model that embraces all stakeholders.
Unfortunately, many companies have failed to make clear how any of this adds to a business’s overall value. Maximizing shareholder value is, to reiterate an earlier point, the legal obligation of a publicly traded corporation and the fiduciary obligation of company leadership. It is likely that all businesses will say they are doing this anyway, and that it is indeed their primary objective. But the failure to connect their business value to their ESG values has left an opening that the anti-ESG crowd is exploiting with full force.
Two Steps Every Company Should Take
- Materiality Assessment: Instead of simply relabeling their ESG efforts, companies should accelerate the original end goal of sustainability in the first place: achieving full integration with company operations. This might require an initial reassessment of a company’s sustainability objectives. Materiality assessments can be a helpful exercise to determine ESG focus areas – and they can help justify any rearranging that might need to be done to align with business priorities.
- Communications Audit: It is also important to assess company goals and make clear in external publications – such as sustainability or annual reports – how these goals advance the business’s broader objectives. Corporate communications should prioritize connecting ESG issues to the bottom line, long-term growth and risk management.
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