When firms wade into the ESG waters, they’re quickly drowning in displeasure from critics. They’re accused of politicizing enterprise and funding selections, or of solely paying lip service to the concept. Nonetheless, executives are staying the course. An amazing majority of CEOs—92%—say they plan to proceed their ESG initiatives regardless of the general public backlash, in accordance with a survey of 260 CEOs and buyers carried out by CEO consulting agency Teneo.
“Companies must be prepared for multiple risks, including stakeholders who think they are going too far on ESG and, conversely, those who think they are not doing enough,” says Teneo vice chair and head of governance and sustainability Martha Carter.
The polarized political setting has achieved little to assist the popularity of ESG. At the same time as voters from totally different events can’t agree on whether or not ESG initiatives are applicable issues for enterprise to issue into their resolution making, they’ll agree that they’ve objections.
“Previously, companies were only getting pressure from the left to be more ESG-focused, but today, global companies—particularly those with household-name brands—are also vulnerable to political pressure from the right to be less-ESG focused,” Carter says.
The upcoming presidential election has thrust ESG again into the highlight, significantly within the ongoing Republican main, which has seen the subject become a talking point among the many social gathering’s candidates. Entrepreneur Vivek Ramaswamy, who authored a number of books slamming ESG as a approach for firms to push an ideological agenda, with out delivering returns for shareholders has been one of the vocal critics, and his critique has gained forex on the proper. In Could of final 12 months, Florida Gov. Ron DeSantis signed a bill prohibiting state officers from investing public cash, similar to pensions, in ESG initiatives. The invoice additionally barred state companies from factoring any such standards into whether or not or to not award a authorities contract to companies that bid for contracts. A number of weeks earlier than Florida signed its state legislation into impact, President Joe Biden vetoed a national version of an identical invoice.
A ‘boogeyman’ time period for CEOs
To keep away from a lot of the furor the time period ESG may cause, some executives have opted to easily change the title they use. “The trouble with the term is it’s become a boogeyman,” Walmart’s chief sustainability officer Kathleen McLaughlin said at Fortune’s Influence Initiative convention in September. “It means a lot of different things to different people.”
For a lot of of these firms, the change is principally beauty. CEOs “think it’s rather myopic, to think you can just take away these three letters that have become toxic and demonized, and just rename it,” a supply with data of Teneo’s analysis says. “It’s the same program. Sadly, that is the way the political situation has become.”
For professor Florian Berg, an MIT professor who researches ESG, the controversies across the subject stem from a lack of clarity about what its targets are. As a result of the letters are loosely outlined, shareholders, the general public, and even employees aren’t certain in the event that they discuss with an organization’s company social duty agenda or a long-term revenue technique. “This problem of the definition of ESG has been around for forever, since its inception,” Berg tells Fortune.
When individuals are unclear about what to anticipate from a enterprise, it could actually depart them feeling misled. “The problem with the backlash is that if we’re not really honest about what the term does, of course, then there will be criticism,” Berg says. “And that criticism might be justified.”
Firms don’t all the time assist engender that belief, both, in accordance with Berg. “The problem is that companies and also investors are often not really honest about their intentions,” Berg says. “They might actually sell something that’s purely a profit-driven decision and then write it in a report as they’re doing a lot for society even though they’re just engaging in profit maximization.”
To mitigate any doable backlashes—which are usually media campaigns, typically pushed by social media—firms shouldn’t simply look ahead to their acknowledged targets but in addition backwards at their previous statements and actions. “The best approach is to stay close to what is important to your key stakeholders—including investors and employees—and ensure public statements and actions align with your business strategy and, of course, to any previously communicated commitments,” Carter says.
