Are corporate leaders caving to the ‘war on ESG’?

The debate about the extent to which businesses should take a stand on social issues is once again in the spotlight for June, aka pride month. But new research suggests that most firms are not responding reactively to manufactured culture wars and are instead thinking longer-term on social and environmental issues.

Are corporate leaders caving to the ‘war on ESG’?

June is pride month – four weeks in which the LGBTQ+ community is celebrated and a spotlight is shone on historic and ongoing battles for equality and inclusion. The occasion has become increasingly more corporate as the years have passed since the Stonewall Riots. Brands in all manner of consumer-facing and even B2B sectors mark the occasion by changing their logos, running communications campaigns and stocking limited-edition products.

The practice has long been criticised by some members of the LGBTQ+ community, when brands are accused of impact-washing and of crowding out community-led organisations. But last year, the criticism intensified massively for retailer Target. The firm received multiple threats of violence towards staff and much furore on social media after launching its pride fashion range. It subsequently dramatically reduced the number of stores stocking these lines, in a move that ultimately hit profits.

This case study has been used to typify the so-called ‘war on ESG’.

But a new poll of more than 800 executives globally, conducted by leadership consultancy Spencer Stuart, suggests that Target’s experience is the exception rather than the norm. The research was supported by Diligent Institute.

Only 17% of survey respondesnts said their organisation has changed the terminology they use to talk about their ESG reports, and/or dialled back on publicising their ESG-related targets, projects and campaigns.

And just 4% said their business has actually scaled back action on ESG-related issues. In other words, three in four businesses tweaking their ESG comms are maintaining momentum behind the scenes.

All in all, fewer than one in 20 of those polled expect their business not to continue or strengthen their ESG approaches in the next five years. This is heartening given that this is a mega-election year globally, with many executives having to face the possibility of new administrations tweaking green policies.

Global shifts

Around 40% of the world’s adult population will get to vote in a national election in 2024. This is the case for edie’s home in the UK, as well as the EU, India, Korea, Pakistan, Indonesia and the US.

The US is regarded as the origin point of the ongoing ‘war on ESG’. Republican lawmakers have – with varying degrees of success depending on their state – sought to discourage enhanced corporate disclosures and to prevent ESG-labelled investing in many states, stating that businesses should not be subject to additional burdens and that customers should not have to deal with this level of ideology in the free market.

This trend could rapidly accelerate and translate into national policymaking should Donald Trump succeed in November’s elections. Trump famously withdrew the US from the Paris Agreement on climate change during his tenure from 2017.

It bears noting that many businesses sought to uphold their climate commitments despite this challenge. More than 3,900 organisations and individuals, representing more than $6.2trn, participated in the ‘We Are Still In’ coalition – a joint declaration to continue efforts to align with the Paris Agreement.

We could see a similar but broader effort in the near future. But the Spencer Stuart survey did reveal that executives in North America are less likely to see ESG as a top-level priority than their counterparts elsewhere. 22% of those polled in North America named ESG as a high-level concern, compared with 46% in Europe and 51% in the Asia-Pacific region.

The survey findings suggest that regulation and legislation can be a key driver of corporate prioritisation of ESG. More than 90% of those polled in Europe and Asia-Pacific said they are prepared to act to comply with new regulations, with the share being 10% lower in North America.

This suggests that there is something of a self-fulfilling and self-perpetuating prophecy in North America. Lawmakers have blocked the introduction of regulation and legislation on the grounds that there is no business appetite for compliance. As such, businesses feel less pressure to act.

Beyond box-ticking

Disclosure is the key focus of much ESG-related policy. The EU is undoubtedly the region in which sustainability disclosure requirements are the most extensive. This is largely due to changes made recently, such as the introduction of the regulation on deforestation-free products (EUDR) in June 2023 and the Corporate Sustainability Reporting Directive in January 2024.

Enhanced requirements in the ESG disclosure space will be key to give investors and other stakeholders high-quality, comparable information on business’s credentials. They should also give corporates more visibility on their true impacts and enhance risk assessments.

That said, the Spencer Stuart survey findings suggest that increasing regulation and legislation could be causing more executives to view ESG as a compliance exercise. Only 26% of those polled said their companies thought about ESG more in terms of opportunities than risks, compared with 40% in 2023.

And, this time around, 45% said they either act to meet minimum compliance requirements or to prepare for evolving voluntary sustainability standards. This is almost half of businesses with no intention to go above and beyond.

This does not mean that decision-makers are entirely blind to the value provided by a robust ESG approach. The majority of the executives (58%) recognised ESG as linked to an organisation’s ability to attract and retain talent, for example.

But just one-quarter believe ESG can open up new revenue opportunities and only one in ten believe acting can cut costs. This is a mindset that could seriously hamper action during the current economic downturn. When the executives were asked what obstacles they face in developing, integrating and maintaining a strong ESG strategy, the most common answer was competing business interests.

With this in mind, there’s still much that ESG professionals can do to help senior managers understand the value of a holistic, long-term, broad approach.

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