Tag: ESG backlash
Would “reframing” ESG restore its appeal?
In this Comment from a Reuters magazine, the author attempts to rescue the underlying environmental, social and governance principles from the often disparaged term, “ESG.” ESG, he observes, was “[o]riginally conceived as a financial tool to frame how corporations disclose their impact and investment,” but has now become a term that is “fraught with debate, lacks a clear definition and is often misunderstood.” However, he contends, people actually associate many of the values and concepts underlying ESG with business success. Perhaps the term should be retired, he suggests, in favor of something less freighted. “Responsible business” might do the trick—especially “responsible business” that correlates with positive corporate performance.
Is ESG a “must have” only in boom-times?
Not so long ago, zeal for corporate action on ESG was skyrocketing. Now? Not so much. What happened? Many have attributed the decline in appetite for ESG to the politicization of ESG and particularly to ESG backlash. This paper from the Rock Center for Corporate governance at Stanford has another idea. Has “ESG enthusiasm” reached its expiration date or, as the paper posits, is it like an alligator Birkin bag, just a luxury—something to pursue only when you’re “feeling flush”? In economics, the authors explain, demand for most items declines as prices increase. Not so with luxury goods, where “a high price tag stimulates demand in part because of the social benefits the purchaser receives by signaling to others their ability to afford it.” Demand for luxury goods often rises and falls with the economy; when times are prosperous, demand for luxury goods increases and when money is tight, demand falls. In that light, a “case can be made,” the authors contend, “that ESG is a luxury good.”
Is ESG backlash triggering a change in policies or just a change in terminology?
As discussed in this article from the WSJ, The Latest Dirty Word in Corporate America: ESG, ESG backlash is driving many company executives to drop any reference to “ESG” and instead use terms like “sustainability” or “responsible business,” or opt for “green hushing” altogether. Citing an analysis from FactSet, the WSJ reported that, on “earnings calls, mentions of ESG rose steadily until 2021 and have declined since…. In the fourth quarter of 2021, 155 companies in the S&P 500 mentioned ESG initiatives; by the second quarter of 2023, that had fallen to 61 mentions.” But are companies just turning down the volume while still pursuing the same aspirations or have they trimmed their objectives too?
Tackling ESG backlash
As ESG backlash escalated this past year, companies have often felt caught between Scylla and Charybdis, struggling to navigate between the company’s commitment to ESG issues that the company believes will contribute to its long-term performance and benefit investors and other stakeholders, and the opposition that has arisen to the corporate focus on ESG, particularly social and environmental matters. The Conference Board, however, suggests that we look at it differently: “Despite the negative connotations, ESG backlash can be a clarifying moment for companies. It can prompt companies to reevaluate their ESG strategy, priorities, and commitments,” providing an “opportunity to clarify their ESG strategy and communications.” In a recent TCB survey, half the companies indicated that they had experienced some form of ESG backlash, whether against their industry (26%), more generally (e.g., their state) (20%) or against the company specifically (18%). In addition, 61% thought that ESG backlash would “stay the same or increase over the next two years.” TCB posits that the increase will be driven largely by “emotionally charged topics, such as hot-button social issues and the transition to more sustainable forms of energy that raises fear of job losses.” With that in mind, this paper from TCB attempts to provide some analysis of the nature of ESG backlash and guidance on how companies can address it.
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