The new ESG landscape has businesses scrambling.
Large corporations that have spent the last few years building up their sustainability, environmental, social and governance programs are confronting a bit of an existential crisis as they start to digest the first round of actions coming out of the new administration in the U.S. In response to a series of executive orders pulling the U.S. out of the Paris climate agreement and ending the green new deal, businesses are now starting to make some tough decisions about how they want to position themselves on the topic of sustainability.
While some, have reiterated their commitment to policies such as diversity, equity and inclusion, several others have started to roll them back, and an even larger number have just gone quiet. This trend toward “green hushing” has been going on for a while now. In fact, research has even found that mentions of the words “environmental, social and governance,” “ESG,” “diversity, equity and inclusion,” “DEI,” or “sustainability” on corporate earnings calls of U.S.-listed companies have been declining steadily over the past couple of years. While that silent, don’t ask/don’t tell approach may seem like the safest bet right now, it could actually expose companies to a great deal of risk when it comes to making big decisions about how they run their operations and how they are viewed by many of their stakeholders.
Actions Speak Louder Than Words
Taken in aggregate, this evolution in the positioning of corporate sustainability, ESG and DEI says a lot about how large corporations are being influenced by the cultural zeitgeist. At the individual company level, however, these decisions reflect a much deeper sense of how companies view themselves as corporate citizens and what they feel their real role is in the lives of their employees, customers, investors and the communities in which they operate. Clearly defining that role during this period of rising uncertainty should be a top priority for companies that believe culture matters, but doing so is not as easy as issuing a media statement or publishing a sustainability report. It plays out in a series of actions over the course of running the business.
Let’s say, for example, that a larger manufacturer that had previously made bold promises about net zero emissions targets, fair and equitable hiring practices and global supply chain transparency were to be confronted with a decision to acquire a strategic player with a fundamentally different worldview and a decidedly “anti-woke” position on all things ESG. Should they move ahead despite the cultural mismatch? Try to find a way to influence or manipulate the acquisition target’s culture? Or simply walk away?
Empowering Deliberate Decision Making
The answer to that question will often depend on who’s being asked. In some cases, the finance and accounting teams could prioritize business synergies and combined earnings potential as the most important criteria. Strategy and sales teams may view the transaction through the lens of increased market share. Chief Sustainability, Risk Officers and Legal Counsel will typically focus on the potential for conflict and exposure to unforeseen downsides. And the CEO will often be swayed most heavily by which part of the business they had the most experience with when climbing the ranks. So, who’s right?
The only way to answer that is for a business to define what sustainability means to them, and what role they allow it to play in big strategic decisions. If the business is all about adding shareholder value at all costs, maybe it’s a sign that sustainability is not at the core of their business. If the company has a more nuanced view of its mission and its place in the world, or maybe more active, sustainability focused stakeholders, they need to make sure they have the right voices — and job roles — empowered within their organizations to influence important decisions.
Corporate sustainability is much bigger than a set of environmental policies, hiring practices or “green” branding. It is a core set of values, systems and processes that help govern every decision a company makes. There is no right way or wrong way for companies to approach that, but they have to recognize that their actions, the people they trust to make important decisions and the way they report progress against stated goals will reflect a clear position — whether they want to be vocal about it or not. That’s why it is so important now, as politicians, business leaders and investors are all watching how businesses navigate the current period of uncertainty, that business leaders bring together the right people and the right resources to reflect their core values.
Crucially, as the U.S. and possibly other governments start to step back from playing a major role in mandating corporate sustainability standards, market forces will fill the void. It is now up to companies to define their own role in this new reality.
