Have we reached peak ESG?

The seemingly unstoppable rise of investor demand for ESG disclosures has spawned a vast industry of consultants, compliance specialists and new disclosure rules. Jurisdictions from the USA, Europe and Asia mandate ever more detailed disclosures around climate risk, social impact and stakeholder engagement. And that is before the ever-higher governance hurdles for corporates are considered.

But increasingly this path has led towards a misalignment of desire and outcome. Large corporates have the capacity to staff and invest in ESG disclosures that satisfy investors. Smaller firms do not. So while the desire for ESG transparency drives reporting disclosure, the ability to report in compliance with the ever-growing alphabet soup of regulations and standards is increasingly the preserve of the largest, best-resourced firms.

Now an increasing body of opinion is starting to question the whole apparatus of ESG standards.What began as a politically-driven movement in the USA is now manifesting around the world, with the result that companies and investors are questioning the whole foundations of the ESG trend. The move from Shareholder to Stakeholder capitalism has left many investors who have positioned tocapture ESG nursing losses.

Take the example of two of the largest ESG villains and heroes: Shell’s share price has doubled since 2020, Unilever’s has declined by 11%. Of course, we cannot put the ESG genie back into the bottle. Investors are – quite rightly – factoring in climate, social and governance risk into their valuation models.

But increasingly they are seeking nuance and hard evidence of ESG risk management, rather than hundreds of pages of consultantwritten sustainability reports. And in communications terms, companies must navigate the demands for ESG disclosure with an increasingly hostile questioning around that very disclosure.

Here are our top ten tips for companies to navigate this challenge and effectively communicate their commitment to sustainability:

1. Be Transparent and Specific: Instead of relying on the broad label of ESG, companies should be specific about the environmental, social, and governance initiatives they are undertaking.Communicate clear and measurable goals, such as reducing carbon emissions by a certain percentage, improving workplace diversity, or enhancing board diversity.

2. Showcase Tangible Actions: Share concrete examples of actions taken to address sustainability challenges. This could include investments in renewable energy, reduction of waste and water usage, employee development programmes, community engagement, andmore. Highlight the impact of these actions on both the company and society.

3. Highlight Accountability: Communicate how your company is holding itself accountable for its sustainability commitments. Discuss the frameworks, standards, and third-party verifications in place to ensure that your sustainability claims are legitimate. This will help build trust among stakeholders.

4. Engage Stakeholders: Involve your stakeholders in discussions about sustainability. Seek their input, listen to their concerns, and address their questions openly. This inclusive approach not only demonstrates your company's commitment but also helps refine your sustainability strategies.

5. Share Progress and Challenges: Regularly update stakeholders on the progress made towards your sustainability goals, along with the challenges faced. Acknowledge setbacks and discussing how you're learning from them showcases authenticity and a genuine commitment to improvement.

6. Avoid Greenwashing: Greenwashing, where companies exaggerate or misrepresent their sustainability efforts, erodes trust. Instead, be realistic about your achievements, admit shortcomings, and communicate your strategies to overcome them. Authenticity is key. The risks of greenwashing being discovered can wreck your reputation and result in regulatory sanctions.

7. Storytelling with Impact: Share compelling case studies that illustrate the positive impact of your sustainability initiatives. Highlight the personal experiences of employees, community members, or customers who have benefited from your efforts. Storytelling adds an emotional dimension to your communication.

8. Tailor Messaging to Different Audiences: Different stakeholders have different interests and concerns. Tailor your sustainability communication to resonate with investors, employees, customers, and the media. Highlight aspects that matter most to each group.

9. Educational Efforts: Beyond just sharing your own initiatives, contribute to the broadersustainability conversation by educating your stakeholders about the importance of sustainability. Provide insights into industry trends, best practices, and the bigger picture.

10. Collaboration and Partnerships: Showcase collaborations with other organisations, NGOs, or government bodies to address sustainability challenges collectively. Partnerships demonstrate a commitment to driving change beyond your own operations.

In conclusion, the increasing questions around ESG signifies a pivotal moment for companies to reassess their sustainability communication strategies. By being transparent, specific, accountable, and authentic, businesses can build trust, foster engagement, and effectively communicate their genuine commitment to sustainability. As the focus shifts from bureaucratic box ticking to real risk management, companies have the opportunity to lead the way towards a more sustainable future.