As if setting and reaching ESG objectives isn’t already exhausting sufficient for manufacturers and companies within the US, they’re now having to take action in a contentious political ambiance the place one social gathering is preventing to undercut funding managers’ capability to account for sustainability dangers as a way of penalizing those who undertake ESG frameworks (not less than 49 anti-ESG payments have been launched throughout the US this 12 months). In essence, this ESG backlash is making an initiative that was already extremely difficult into one that’s changing into almost inconceivable, regardless of the undeniable fact that well-executed sustainability actions should not solely Earth-friendly but additionally useful to an organization’s backside line.
New analysis from The Convention Board explores the impression of ESG backlash on US firms, revealing that considerably greater than half (61 p.c) of these surveyed count on ESG backlash to proceed or enhance over the subsequent two years. Because the strain mounts, the report recommends that company boards and administration view backlash as a possibility to make clear their ESG technique and communications.
The agency’s new research, How Firms Can Handle ESG Backlash, in collaboration with world CEO advisory agency Teneo, additionally discovered that almost all firms are staying the course on the subject of their ESG commitments. Of the companies affected by backlash, simply 11 p.c are altering the substance of their ESG applications, whereas a majority are focusing extra on the hyperlink between ESG and core enterprise technique. And almost half are altering terminology to make use of phrases corresponding to “sustainability.”
“ESG backlash is an umbrella time period that encompasses a variety of positions from wholesome skepticism to philosophical opposition to numerous types of opportunism,” mentioned Paul Washington, govt director of The Convention Board ESG Heart, in a information launch. “Whereas backlash is commonly fueled by folks’s feelings, firms ought to reply objectively. The simplest response is to make sure the corporate’s ESG positions align with the corporate’s core enterprise technique, are supported by empirical knowledge, and serve the long-term welfare of the corporate, its stakeholders, and society.”
Extra insights from the report embrace:
The present state and sources of ESG backlash—and what the longer term could maintain
Most firms count on a sustained or rising degree of ESG backlash over the subsequent two years:
- 43 p.c count on the extent of ESG backlash two years from now to be better or a lot better than immediately, whereas 18 p.c count on it to stay about the identical.
- The rise in backlash will possible be pushed by emotionally charged matters, corresponding to hot-button social points and the transition to extra sustainable types of power that raises concern of job losses.
ESG backlash presently emanates from a number of sources:
- Firms cite state officers/candidates because the main supply of backlash immediately (31 p.c of respondents), adopted by federal officers/candidates (21 p.c), workers (20 p.c), and the media (17 p.c).
Firms are involved about backlash spreading amongst workers, buyers, enterprise companions, shoppers, and the media over the subsequent two years:
- 55 p.c of firms are involved about ESG backlash from federal and state officers and candidates over the subsequent two years.
- 34 p.c of firms are involved about backlash from the media, 27 p.c from workers, 21 p.c from institutional buyers, 21 p.c from enterprise companions, and 17 p.c from shoppers over the subsequent two years.
Methods used to deal with ESG backlash—and cut back the chance of it sooner or later
Turning adversity into a bonus:
- ESG backlash generally is a clarifying second for companies and immediate reevaluation of their ESG methods, priorities, and commitments.
- To take action requires candid dialogue between the board and senior administration to debate how ESG and multi-stakeholder capitalism match into the corporate’s technique.
Communications and terminology:
- Backlash can immediate firms to sharpen how they make the enterprise case for ESG. 63 p.c of firms that reported experiencing backlash in our survey are rising their deal with how ESG connects with shareholder worth.
- 48 p.c of firms which have skilled backlash are proactively adjusting their terminology when discussing ESG-related issues. Whereas “ESG” resonates properly with buyers, “sustainability” tends to be extra readily understood by workers, prospects, and policymakers.
“Whereas it could be wise to regulate terminology, it can be crucial for firms to keep away from dramatic or unexplained shifts in how they speak about ESG points,” mentioned Andrew Jones, creator of the report and senior researcher at The Convention Board ESG Heart, within the launch. “In any other case, key stakeholders corresponding to buyers, workers, and prospects could view the corporate’s unique commitments and revised statements with skepticism.”
Quite than retreating from the dialog, firms ought to take into account methods by which they will nonetheless successfully share their ESG story:
- 27 p.c of firms have responded to backlash by decreasing their degree of exterior communication.
- Solely a minority of firms have instantly engaged with policymakers, media, workers, or others who oppose their ESG positions.
- It might be significantly useful to place the corporate’s dedication to ESG within the context of the corporate’s longstanding dedication to delivering worthwhile efficiency in a accountable method.
- Firms can constructively have interaction with policymakers in non-public conversations, by means of commerce associations, and in live performance with small companies.
“Whereas the political ESG backlash will possible proceed all through the 2024 US Presidential election cycle, many different stakeholders corresponding to institutional buyers will proceed to press firms on managing materials ESG dangers,” mentioned Matt Filosa, senior managing director at Teneo, within the launch. “So, will probably be crucial for firms to be strategic about how they impart their ESG technique.”
Obtain the total report right here.
The findings of the brand new report come from 1) a roundtable by The Convention Board that introduced collectively greater than 200 company leaders, and a pair of) a survey of 125 companies, about half of which have annual income of over $10 billion.
