ESG Newsletter | Volume 05
Anti-ESG shareholder proposals and political attacks show no signs of slowing down into mid-2023. Some companies, executives, and investors are succumbing to this pressure – attenuating their ESG messaging in fear of stakeholder backlash – while others are doubling down on affirmative ESG communications.
In this ESG newsletter, we explore the following themes against this backdrop:
Changing ESG communications strategies across industries;
Whether, how, and when companies and individuals should speak out on ESG-related matters; and
The materiality of the "S" (social) component of ESG.
We hope you find these short synopses and our takeaways for companies and their communications teams helpful. As always, we welcome your comments and input at Inquiries@AugustCo.com.
An End to the Movement, or Just the Acronym?
Companies are scaling back their ESG-related communications as anti-ESG rhetoric escalates in many states across the country.
Bloomberg reported that 11 major banks and money managers are recalibrating their approach, in some cases avoiding use of the ESG acronym (and related terms) in pitch books, marketing materials, and investor reports to avoid losing business.
The Financial Times reported that several financial institutions have begun listing anti-ESG efforts as a risk in their annual reports, with some citing increased political and reputational risk and the potential to impede fundraising.
What’s Next: It’s not yet clear whether these shifts are attributable to a “follow the leader” mentality or a more fundamental change in perspective, but it’s likely that anti-ESG shareholder proposals and potential legislation will continue to impact companies’ ESG postures and disclosures, leading – at least – to more deliberate and sparing use of the acronym.
How and When Should Companies Speak Out?
Deciding when and to what extent to take a position on ESG-related issues presents “one of the great management challenges of our time,” according to a recent Harvard Business Review piece.
The article argues that companies shouldn’t sit on the sidelines when it comes to significant policy issues, as stakeholders expect companies and their executives to take a stance. The article encourages organizations to be consistent and stay true to their values, warning against attempting to appease skeptical stakeholder groups: “If you don’t know exactly which group is bigger, why not just do what’s right?”
Pfizer’s Chief Corporate Affairs Officer introduced a standard framework for determining the right approach to communications with stakeholders around potentially sensitive issues, which involves weighing how an issue relates to the company’s purpose and values against how it impacts stakeholders, avenues for engagement, and the price of silence.
Our Takeaway: In any situation – particularly as it relates to ESG – communications are most effective and credible when companies deploy strategies that are consistent with their corporate values.
The Materiality of “S” In ESG
A recent Fortune piece contends that the “S” in ESG – social – has yet to capture the attention of corporations the way its “E” and “G” counterparts have, due to the absence of a standard measure of social risk and performance.
The piece quotes AllianceBernstein’s Director of ESG Research and Engagement for Responsible Investing, Saskia Kort-Chick, who attempts to dispel the misconception that “S” issues have no material impact on a company’s operations, citing “increasing legislation around the globe related to human rights and modern slavery” as one area that “creates a huge regulatory risk as well as a challenge to supply chain management for companies.”
Fortune also highlights the United States’ ban on products imported from the Xinjiang region in China in response to human rights abuses, noting that “to avoid falling foul of the law, fashion retailers had to conduct deep audits of their supply chains – which they should have been doing anyway – and, in some cases, eliminate Chinese cotton from their mills, all at a steep operational cost.”
Our Takeaway: While the social issues that pose material risks may be highly specific to a company’s operations and industry, it is incumbent on companies to help their investors understand the materiality of relevant “S” factors on business operations to properly assess risk.