Skip to content

Maintaining trust in business: Why silence on ESG is not an option

Topic: Corporate Sustainability
Jan 23, 2024 4:04:46 PM

With a recent Wall Street Journal article dubbing ESG the latest 'dirty word' in corporate America, the pressure against Environmental, Social and Governance is on the rise. 

This sentiment is not surprising, considering the divisive nature of ESG and DEI (diversity, equity, and inclusion) in politics, coupled with current economic uncertainties and the outlook for increased regulatory disclosures. Interestingly, the terms ESG and DEI were notably absent from the 2024 Davos agenda, leaving the boards and management teams pondering whether to distance themselves from all things ESG now.

But if you look beyond the title of the Wall Street Journal article, you’ll find that the essence of responsible business practices remains resolute. The fundamental principles of operating responsibly to deliver sustained enterprise value for all stakeholders remain a top business imperative. Consider the following.

ESG future-proofs businesses

In the face of the mounting controversy around ESG and in light of escalating macroeconomic and geopolitical events, now is not the time for companies to back down or step away from their ESG programs and practices. Instead, it’s time to embrace a holistic approach to advancing ESG initiatives by further incorporating them into your long-term strategy, corporate narrative, investor communications, and everyday business decisions.

Whether your company is B2B or B2C, ESG helps you gain a competitive edge in winning and keeping customers. Many companies won’t work with partners who can’t demonstrate they have sustainable business practices. Additionally, communicating about your sustainable business practices positions you as a partner of choice to a company.

Read more: ESG is now table stakes: Is your company still on the sidelines?

ESG helps to safeguard investments and deliver returns

Investors, guided by fiduciary responsibility, recognize that environmental challenges, social issues and governance practices can significantly impact a company’s performance, and consequently, the value of their investment. Climate change, regulatory requirements, social unrest, and governance scandals are examples of ESG-related factors that can pose substantial risk to companies and their investors.  

Effectively managing ESG-related risks and opportunities not only safeguards investments, but also positions companies to deliver sustained, attractive returns.

ESG appeals to the values of a new generation of investors, customers and employees

We are in the midst of the largest ever generational wealth transfer, and younger generations place significant importance on responsible business practices that resonate with their core values. They want to work for, invest in and buy products from companies that share their values. Moreover, younger generations view responsible practices as not only crucial for business success, but also essential contributors to building a more sustainable and inclusive world for the future.

By addressing climate change and other pressing global issues and reflecting a commitment to ethical and socially responsible business practices, companies can appeal to the values of the younger stakeholder demographic.

Read more: How to make sure corporate ESG strategy appeals to younger generations

Stakeholders increasingly expect transparency

The theme for this year’s Davos summit was “Rebuilding Trust.” CEO Daily had an exclusive preview of the much-anticipated annual Edelman Trust Barometer that revealed a consistent trend: businesses are more trusted than governments, NGOs or media. While this may not be groundbreaking, it underscores the crucial need for companies to demonstrate how they assess and navigate both short- and long-term environmental, social and governance risks and opportunities.

Stakeholders are increasingly vocal about their expectations for transparency, so companies should spell out how these efforts contribute to their sustainable growth and create value for all stakeholders.

We’ve seen countless cases over history where the pendulum swings too far in one direction on an important, potentially divisive, issue and then returns to the center. In reflecting on the current backlash surrounding ESG, this could simply be the business world finding equilibrium – a natural evolution rather than a reaction. 

Instead of abandoning ESG initiatives, companies should simply consider renaming them

Before ESG became ubiquitous, many companies referred to their ESG programs and initiatives as corporate responsibility, responsible business, sustainability, or something else.  

Every company has its own set of circumstances and should focus on its unique principles and commitments. What truly matters is defining these practices in a way that resonates with your company and stakeholders and aligns seamlessly with your mission, vision, values, and brand. It’s about being authentic and transparent and recognizing that running your business responsibly is fundamentally good for business and the right thing to do for your stakeholders. 

Need direction in building and evolving your sustainability and ESG programs? Check out our strategic counsel and resources on best practices with ESG and sustainability.

About the author:

Leigh Ann Johnston is a Senior Vice President at Financial Profiles, where she helps clients integrate sustainability and ESG into their business practices and communications.

Topics from this blog: Corporate Sustainability