ESG Newsletter | Volume 06
In the latest edition of August’s ESG newsletter, we discuss shifting CEO perspectives on ESG, this proxy season’s surge in ESG-related shareholder proposals, greenwashing, and the future of environmental reporting.
Broadly, we also note that with the resolution of the debt ceiling issue and the approach of 2024 election, the volume of political rhetoric around ESG issues will likely increase, necessitating an even greater need for strategic and disciplined communications.
As always, we hope you find these overviews and takeaways helpful and welcome your feedback at Inquiries@AugustCo.com.
CEOs on ESG and Corporate Values
Fortune reported on a recent survey asking Fortune 500 CEOs whether they view political pushback against ESG as a “useful correction” or an “unfortunate development.” With responses nearly split down the middle, Fortune CEO Alan Murray opined that the attacks on ESG have “found their mark” and are resonating with more CEOs. Companies are scaling back their ESG-related communications as anti-ESG rhetoric escalates in many states across the country.
As companies increasingly become targets in the U.S. culture wars, The Wall Street Journal suggests that some CEOs are rethinking engagement with politicized topics.
Nike CEO John Donahoe shared a perspective at CNBC’s inaugural CEO Council Summit, asserting that companies don’t need to weigh in on every hot-button issue or political spat but should be a loud voice when their companies’ values are under attack.
Barron’s reported that an increasing number of executive bonuses are being tied in part to hitting ESG goals, citing concerns that these targets are often too vague, lack a clear business case, and may lead to shortsighted decision making.
What Should Executives Do? Stakeholders continue to expect companies to take positions on politicized topics. Executives should refine the core values of the companies they lead and use those values as a lens through which to view and take positions and action on ESG-related topics. As a result, companies with a track record of aligning their values with their business and articulating that connection in a way that resonates with core audiences will be able to navigate varying stakeholder interests most effectively.
Navigating Proxy Season
Public companies’ ESG-related initiatives and strategies are being challenged more than ever by shareholder proposals on both ends of the political spectrum, The Wall Street Journal recently reported.
The Wall Street Journal notes that while many boards of directors tend not to take sides, and shareholder proposals rarely pass, evaluating the submissions inevitably uses valuable board time and often exposes companies to unwelcome media attention.
The Executive Director of the Sustainable Investments Institute, Heidi Welsh, observed that, faced with an influx of ESG-related shareholder proposals (anti-ESG proposals have increased nearly 70% since last year), companies can no longer avoid “getting dragged into partisan fights that they don’t want to be in.”
Our Takeaway: While it’s impossible for companies to preempt shareholder proposals on ESG-related issues, they can do a better job responding to these proposals by explaining how the company’s positions on ESG issues are good for business and long-term shareholder value creation.
Taking Down Greenwashing
A global coalition of environmental organizations recently introduced the first-ever scientifically based targets for preserving nature and the environment. The coalition will start by helping a group of 17 companies – mostly in the food and beverage and fashion industries – define, measure, and improve their environmental impact.
If successful, this pilot may provide corporations with a template for improving environmental stewardship and lend credibility to organizations looking to showcase their efforts.
In the future, a codified framework may also help companies mitigate legal risks that are plaguing a growing number of companies being accused of greenwashing. A recent example is Delta Airlines, which is facing a proposed class-action lawsuit claiming it misrepresented itself as a carbon-neutral airline in marketing campaigns and advertisements that encouraged consumers to pay higher prices based on the environmental benefit.
What’s Next: The reputational risks posed by inaccurate or embellished ESG marketing will only increase as environmental impact evaluation frameworks are standardized and disclosure regulations are introduced. We expect to see more data-driven environmental communications and marketing as companies pursue credibility in this changing landscape.