Companies must carefully balance their internal and external communications to minimize risk and reputational damage when addressing ESG issues, while seizing responsible business opportunities and clearly communicating their positions on sustainability
Pro- and anti- forces that are active around environmental, social & governance (ESG) issues are likely to stay active in 2024, based on the dynamic legal environment in 2023. Indeed, 165 pieces of legislation proposing the restriction of the use of ESG considerations in investments were issued in 2023 in 37 states, although 85% of these bills were voted down, abandoned, or stalled in the legislative process.
Whatever happens in the political arena, some companies are finding that even in a charged political environment, cooperation is still possible. Many companies are holding off from making grand pronouncements because of these unfortunate attacks, yet many are putting out profoundly comprehensive sustainability reports that tell a noteworthy story.
Communicating in a polarized environment
Litigation and lawsuits have forced companies to approach communicating around ESG issues delicately. They do so with a balancing act that takes into consideration the views and concerns of all stakeholders in their internal and external communications, both to clearly communicate and to minimize risk and reputational damage. Given the complex landscape, companies need effective strategies to manage risk and reputation while continuing to seize responsible business opportunities and communicate consistently and clearly their positions in support of sustainability.
Both legal and communications teams play a key role in developing and executing those strategies. In fact, given all of the concern about unwanted media attention, E. Phileda Tennant, Counsel at Vinson & Elkins, advises organizations to conduct a holistic review of all historical external reporting of ESG information, in particular company diversity initiatives. Corporate counsel also should review any new statements as they come up, Tennant suggests.
The foundation of all ESG communication is returning to the purpose of why the company started reporting on ESG issues in the first place and distilling the objectives in terms of what the company wants to achieve. “All of our efforts march towards a well-defined set of goals which are mapped against United Nations Sustainable Development Goals,” says Chris Leong, Chief Marketing Officer at Schneider Electric. “And we see from the vast majority of our stakeholders a common agreement on the imperative behind what we do.”
You can access the full white paper, Communicating ESG effectively in a polarized environment, here
Another communications-related concern is the use of the term ESG itself because of worries that the company may become the target of backlash. While there has been a lot of attention on whether or not the term ESG is dead, Carol Cone, CEO of Carol Cone on Purpose, says the concern may be overblown. “Don’t worry about what you call it,” Cone told the digital media site Triple Pundit. “Stick to your organization’s long-term, strategic commitments to stakeholders, society, and the environment.” She also offered three ways in which to assist in depolarizing the conversation, emphasizing the need for reviewing purpose and objectives:
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- Be clear about the goals of ESG. It is not about imposing a set of values but rather a framework for companies to assess and optimize their value and impact.
- Boost transparency around ESG data and metrics, to ensure that investors and other stakeholders can make informed decisions.
- Adopt standardized reporting frameworks so that it is easier to compare companies’ ESG performance.
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Investors staying the course
Investors have been a particular target of the anti-ESG backlash, with financial services companies seen as “the gatekeepers of ESG investments.” Despite the criticism, however, investors who have been considering ESG principles in their investment decisions remain steadfast in their view that they are exercising their fiduciary duty in taking into account all material risks. For chief communications and sustainability officers as well as in-house counsel, this is important to remember.
“It is important that we carefully measure risk, and there are often risks related to climate, human capital, and board governance,” explains Marcie Frost, CEO of the California Public Employees’ Retirement System (CalPERS). “Having a clear-eyed view is part of our fiduciary duty. Because we’re long-term, patient capital investors and take the longer-term view, we have high expectations for the capital that’s being used on the behalf of our 2 million members.”
Steven Meier, Chief Investment Officer for the New York City Retirement System agrees, adding: “We talk about these issues in the same way we did 10 years ago. Nothing of substance has really changed. Our approach has not changed — it is around diversification, it is around risk management. Consumers, not politicians, are driving the energy transition.”
As public interest and scrutiny into ESG issues continue to rise, companies face an ever-evolving landscape related to their ESG disclosures. On the other side of issues, there are those who think business should be doing more on the sustainability front, especially to combat climate change. Not surprisingly, lawsuits are seen as a key tool in delivering climate justice.
Whatever ultimately happens with the ESG backlash, business leaders and investors say it won’t cause any changes in how they make decisions about running a responsible business. Kevin Tubbs, vice president and chief ethics, compliance, and sustainability officer at Oshkosh Corp. puts it this way: “Oshkosh has a set of core values that we operate by, and our first core value is to do the right thing — and that includes being a sustainable company.”
This whitepaper created as part of Reuters Events: Responsible Business USA 2024, to be held March 26-27 in New York City.
