September 21, 2023
The term “ESG” has been thrust into the national conversation in 2023 thanks to a confluence of passed and prospective legislation, political discourse and heightened stakeholder expectations concerning corporate environmental, social and governance disclosure.
The anti-ESG movement has picked up steam in Washington, D.C., and a number of states this year as conservative pundits, governors and lawmakers have loudly questioned the validity of socially conscious investing and so-called “woke capitalism.” In fact, at least 165 bills and resolutions against ESG investment criteria were introduced in 37 states between January and June 2023, according to a recent report by Pleiades Strategy, a climate risk consulting firm. This anti-ESG sentiment has been echoed by some investors who have taken aim at company executives for what they perceive to be a lack of correlation between ESG policies and shareholder value.
This pushback has not gone unnoticed among those in the C-suite. In a recent survey by The Conference Board of more than 100 large U.S. companies, nearly half of the executive leadership who responded said their company has already experienced ESG backlash, and 61% said they expect it to persist or intensify in the next two years.
Despite the backlash, just 11% of the companies affected said they are planning on changing the substance of their ESG programs. Instead, respondents said they are working to better clarify their company’s positions, and nearly half said they are rebranding their ESG initiatives under the banner of “sustainability” or a similar term in an effort to avoid undue scrutiny.
While the phrasing may change for some, the importance of communicating and reporting ESG performance continues to grow for companies.
On the regulatory front, the U.S. Securities and Exchange Commission’s (SEC) proposed rule on climate-related disclosures for investors and the European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD) have businesses on both sides of the Atlantic preparing to face mandatory ESG reporting requirements. Additionally, heightened litigation and enforcement are placing increased pressure on companies to effectively oversee their ESG initiatives and accurately convey them to the public.
Beyond these regulatory requirements, many companies’ most-important internal and external audiences – including employees and the customers they serve – continue to express an appetite for meaningful communication on environmental and social responsibility performance.
Between complying with the latest mandates, avoiding legal scrutiny and fulfilling stakeholder expectations, the need for companies to be transparent on their ESG efforts is clear, even if the terminology surrounding the issue is not.
Have questions on how your organization can effectively communicate its sustainability strategy amid today’s shifting political and regulatory climate? Contact me at aredling@dix-eaton.com.
