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Evolving ESG to Advance Good Business

By Daryl Brewster, CEO, CECP

It was recently climate week in NYC where there was a lot of conversation about ESG. Despite the pushback, particularly in the U.S., ESG is alive and well, even if companies are talking about it less and in different ways.

The idea that large companies should pay more attention to the impact of their actions on people and planet has become embedded in the strategies of the best and biggest corporations, and is increasingly expected by employees, business partners, investors, and a growing group of consumers. ESG is intrinsically tied to a company’s sustainable value, which is guided by and advances its purpose.

For example, Jamie Dimon wrote in his 2023 annual letter to shareholders, “Research has shown that purpose-driven companies achieve stronger business results and have greater impact by doing better for their customers, employees and shareholders.”

And it’s because ESG is not just altruism or philanthropy. It’s just good, responsible business. A study by Bain that showed that having a good ESG platform [in procurement] leads to higher margins by about 3%. McKinsey showed that having a meaningful and impactful ESG strategy lowers your cost of capital by 10%.

Leaders are working to reduce the partisan eruption around ESG, and instead handle it for what it is: rational risk management. Regulation is coming and companies need to know specifics regarding materiality vs measuring everything. What likely will soon disappear in the meantime is the ESG acronym—which is the root cause of a lot of friction.

An October 2023 CECP Pulse Survey gathered insights into what are considered the most effective actions companies can take in light of the ESG backlash. There was a near three-way divide among respondents’ answers: 37% believe in openly sharing their ESG-related impact data and future sustainability plans, emphasizing transparency with stakeholders; 34% feel that stepping back from ESG is the best approach due to its perceived risks; 29% advocate for a more discreet approach, suggesting companies should not publicly endorse ESG to avoid drawing critics’ attention, yet continue their ESG investments recognizing its benefits for the company and stakeholders.

To the 29% who feel it is best to stay quiet about ESG, we encourage you to continue to speak up, but perhaps use different words, such as “responsible business”. Stakeholders will take silence as a backstep – either that you are doing nothing or the wrong thing. To the 34% who believe stepping back from ESG is their best bet, consider what is financially material to your business. Consider what it means to serve as a force for good in the world. ESG, as noted above, is simply “responsible business”.

But instead of only talking about degrees Celsius and carbon, companies should address specific risks and benefits that affect employees, business partners, investors, and a growing group of consumers. These issues include clean air and clean water; personal well-being; and the long-term success of the company. Other things to consider:

E: When it comes to the environment, consumers are more focused on targeted actions vs broader climate change (e.g., reducing waste and pollution, reducing use of plastic, products that respect the environment). Colgate-Palmolive is a great example. The company created a recyclable toothpaste tube and made it open source for competitors. Focused on clean water issues globally. In addition to their efforts to reach Net Zero GHG emissions across the value chain by 2040, achieve zero waste, and advance the SDGs, Colgate  announced the signing of a 20-year virtual power purchase agreement (VPPA) that will produce the equivalent of 100% of the Company’s electricity needs for operations in the U.S.

S: To simplify the S, it may be useful to think of it not as standing for “Social” but rather as “Stakeholders”, who can be identified and addressed individually as employees, customers, communities, etc. The DEI goal in business is not just about diversity. It should also be about excellence, impact, performance, and creating value in an equitable way for your key stakeholders.  A new Ipsos study found within ESG, “improving society” (S) is the top concern, with working conditions, improving worker health and safety, service the poor and underserved, and treating employees better in the top.

G: Executives are building bridges with the board to ensure effective governance. This may involve consolidating and translating valuable information to the board and investors, as well as ensuring that management has a problem-solving mindset to deliver results. But it also may include providing a detailed overview of how effective governance plays a role in ensuring accurate and transparent reporting. For example, the EU will ban sweeping environmental claims such as “climate neutral” or “eco” by 2026 unless companies can prove the claim is accurate, as the bloc cracks down on greenwashing of consumer products. CEOs of leading companies are presenting to investors at the 11th CEO Investor Forum this fall using CECP’s proprietary Integrated Long-Term Plan to build those bridges, solve those problems, and ensure accurate and transparent reporting.

Perhaps it’s now time for ESG to outgrow its current branding and go back to the fundamentals of its existence: businesses playing a positive role in society and standing up for what is right. If looking for guidance about what matters most to your company, here are some ways to speak up and out for what matters most. While trying to avoid the backlash, don’t forget what really matters. We haven’t made all this progress on advancing social issues just to relent now. Understand what battles you can pick and keep moving forward.

CECP is helping its companies navigate how to communicate with caution in a time when words are getting in the way of action. We are reminded that people generally agree on 85% of the important things in life; but in these challenging times, some tend to focus on the 15% where we don’t see eye to eye. But despite the controversy, we are all focused on caring for employees, looking forward, doing what’s right, and remaining competitive and profitable.