As if setting and achieving ESG goals isn’t already hard enough for brands and businesses in the US, they’re now having to do so in a contentious political atmosphere where one party is fighting to undercut investment managers’ ability to account for sustainability risks as a means of penalizing those that adopt ESG frameworks (at least 49 anti-ESG bills have been introduced across the US this year). In essence, this ESG backlash is making an initiative that was already incredibly challenging into one that is becoming nearly impossible, despite the proven fact that well-executed sustainability actions are not only Earth-friendly but also beneficial to a company’s bottom line.
New research from The Conference Board explores the impact of ESG backlash on US companies, revealing that substantially more than half (61 percent) of those surveyed expect ESG backlash to continue or increase over the next two years. As the pressure mounts, the report recommends that corporate boards and management view backlash as an opportunity to clarify their ESG strategy and communications.
The firm’s new study, How Companies Can Address ESG Backlash, in collaboration with global CEO advisory firm Teneo, also found that most companies are staying the course when it comes to their ESG commitments. Of the firms affected by backlash, just 11 percent are changing the substance of their ESG programs, while a majority are focusing more on the link between ESG and core business strategy. And nearly half are changing terminology to use terms such as “sustainability.”
“ESG backlash is an umbrella term that encompasses a range of positions from healthy skepticism to philosophical opposition to various forms of opportunism,” said Paul Washington, executive director of The Conference Board ESG Center, in a news release. “While backlash is often fueled by people’s emotions, companies should respond objectively. The most effective response is to ensure the company’s ESG positions align with the company’s core business strategy, are supported by empirical data, and serve the long-term welfare of the company, its stakeholders, and society.”
Additional insights from the report include:
The current state and sources of ESG backlash—and what the future may hold
Most companies expect a sustained or rising level of ESG backlash over the next two years:
- 43 percent expect the level of ESG backlash two years from now to be greater or much greater than today, while 18 percent expect it to remain about the same.
- The increase in backlash will likely be driven by emotionally charged topics, such as hot-button social issues and the transition to more sustainable forms of energy that raises fear of job losses.
ESG backlash currently emanates from multiple sources:
- Companies cite state officials/candidates as the leading source of backlash today (31 percent of respondents), followed by federal officials/candidates (21 percent), employees (20 percent), and the media (17 percent).
Companies are concerned about backlash spreading among employees, investors, business partners, consumers, and the media over the next two years:
- 55 percent of companies are concerned about ESG backlash from federal and state officials and candidates over the next two years.
- 34 percent of companies are concerned about backlash from the media, 27 percent from employees, 21 percent from institutional investors, 21 percent from business partners, and 17 percent from consumers over the next two years.
Strategies used to address ESG backlash—and reduce the risk of it in the future
Turning adversity into an advantage:
- ESG backlash can be a clarifying moment for corporations and prompt reevaluation of their ESG strategies, priorities, and commitments.
- To do so requires candid discussion between the board and senior management to discuss how ESG and multi-stakeholder capitalism fit into the company’s strategy.
Communications and terminology:
- Backlash can prompt companies to sharpen how they make the business case for ESG. 63 percent of companies that reported experiencing backlash in our survey are increasing their focus on how ESG connects with shareholder value.
- 48 percent of companies that have experienced backlash are proactively adjusting their terminology when discussing ESG-related matters. While “ESG” resonates well with investors, “sustainability” tends to be more readily understood by employees, customers, and policymakers.
“While it may be sensible to adjust terminology, it is important for companies to avoid dramatic or unexplained shifts in how they talk about ESG issues,” said Andrew Jones, author of the report and senior researcher at The Conference Board ESG Center, in the release. “Otherwise, key stakeholders such as investors, employees, and customers may view the company’s original commitments and revised statements with skepticism.”
Rather than retreating from the conversation, companies should consider ways in which they can still effectively share their ESG story:
- 27 percent of companies have responded to backlash by reducing their level of external communication.
- Only a minority of companies have directly engaged with policymakers, media, employees, or others who oppose their ESG positions.
- It may be particularly helpful to put the company’s commitment to ESG in the context of the company’s longstanding commitment to delivering profitable performance in a responsible manner.
- Companies can constructively engage with policymakers in private conversations, through trade associations, and in concert with small businesses.
“While the political ESG backlash will likely continue throughout the 2024 US Presidential election cycle, many other stakeholders such as institutional investors will continue to press companies on managing material ESG risks,” said Matt Filosa, senior managing director at Teneo, in the release. “So, it will be imperative for companies to be strategic about how they communicate their ESG strategy.”
Download the full report here.
The findings of the new report come from 1) a roundtable by The Conference Board that brought together more than 200 corporate leaders, and 2) a survey of 125 corporations, about half of which have annual revenue of over $10 billion.
