Over the last decade and a half, ESG and how businesses implement it has become no longer an “if” but a “how.” Polling shows that today’s stakeholders expect their employers, brands and leaders to engage in ESG issues. However, the increasing politicization of ESG creates significant complexity for companies and poses potential risks to reputation, market positioning and even license to operate if navigated incorrectly. Weighing in successfully requires using objective intelligence and measurement tools that create a framework for responsible, stakeholder-minded decision-making.
The societal forces of recent years created a seismic culture shift in corporate America -- forcing corporations to regain customer trust and convey their corporate responsibility. Companies, some for the first time, fielded increased demands from important stakeholders including employees, customers and shareholders for positioning and/or engagement on a range of social and political issues.
This momentum indicated an important shift in the ethos of corporate America, but many companies lacked experience in the space and the foresight to make commitments that were sustainable for their businesses. Now, a slowing economy has strained corporate resources and there’s a relatively new set of concerns for company leaders as ESG has become increasingly partisan. For example, many widely known brands have reported experiencing blowback for social statements or commitments, some even experiencing state legislative pressure to disincentivize ESG-focused investing.
It’s no surprise, then, that ESG has become an increasingly treacherous landscape for companies and CEOs to chart. Doing so requires a thorough strategy that considers the complete range of stakeholders and is informed by an objective framework to establish a path forward. The question is: How can companies chart the right path forward for their organizations on ESG issues?
A North Star for Navigating the ESG Landscape
Aggregating, evaluating and balancing all the considerations around ESG requires an objective process. While a company’s values and mission are the right starting point to inform decision making, there are three notable factors worth considering that can guide your company or leadership toward a decision on if, how and when to engage that makes the most sense for your brand, and to position you to communicate your decision effectively to diverse stakeholders.
1. Your Values and Mission
Customers expect companies to remain consistent with their values and the principles upon which they operate – and are quick to call out hypocrisy and inconsistencies. The ethos by which companies operate is important to customers – and using stated values to guide decisions is a critical way to ensure that any statements around ESG commitments are authentic, objective and actionable. Consider if the issue at hand aligns with your company’s stated mission and values and how the issue affects all facets of your business. While social issues don’t always directly align with a company’s mission and values, they are nonetheless important.
- Consider if a change on this issue would impact your stated mission. For example, many in ESG circles cite Ryan Gellert, CEO of Patagonia, taking bold action on climate change, aligning with its brand and its customers’ values.
2. Your Stakeholders’ Values
It’s important to have a deep understanding of the values hierarchy held by every one of your stakeholder audiences. Skipping this exercise can pose a significant risk to your business and reputation. Some stakeholder groups to consider:
- Employees: Gathering data about employee preferences and values can limit pushback, negative economic impact and help sync your company’s actions with the people executing your mission on a day-to-day basis.
- Customers: Considering how your current and future customers may react is essential. For example, companies with a majority customer base in the 18-24 age range may feel more compelled to act on climate issues, given that polling shows that about 70% of Generation Z and Millennials believe climate should be a top priority for businesses. Determining which issues and how often your company wants to engage should be informed by both your target customer and employee bases.
- Board Members: Generating buy-in from board members and your C-suite is also a critical early step. Having internal agreement creates a unified approach.
- Other key stakeholders to consider include communities where you operate, elected officials at both the federal and state levels, and NGOs, among others.
3. Business and Operational Risks & Implications
It’s also critical to assess the potential risks and gains of taking a public position. This type of evaluation must be factored into decision-making and proactive communications to help ensure that the company can withstand various exigencies.
- Does this issue align with your company’s values and mission? Can your company speak on this matter with credibility?
- Would inaction result in customer and employee loss to competitors who prioritize issues that are important to them?
- Do you have a solid, data-backed understanding of the material implications of engagement – or lack of engagement - on a given issue? Do these implications have the capacity to slow or halt (or accelerate) business operations, impact reputation or talent? For example, some considerations may include:
- Could going public on an issue spark a government official to say something or take an action that could have a negative impact on your business itself or standing among certain stakeholders?
- Is the risk worthwhile and/or offset by other gains?
- Do you risk customers attacking the company on social media or calling for a boycott?
- Will you realize a short-term gain in the marketplace that is not structurally sustainable and might create challenges down the road?
A Path Forward
There is no singular path forward that’s appropriate to all companies and charting the right one is challenging, but an informed and measured decision-making framework will help companies identify the right approach that’s specific to their business.
Are you looking for additional support navigating ESG commitments and actions? Get the conversation started by emailing us at [email protected].