Handling ESG In An Increasingly Political World

Since corporations enjoy many of the same rights and definitions of citizens under the legal definition in many parts of the world, it makes sense that governments - especially in the US - are drumming up concerns over businesses making decisions towards ESG. 

On a federal level, several Republican senators are attacking various large corporations for some of their ESG values or decisions made. Beyond that, many Republican governors are also tackling ESG under an “anti-woke” movement that will only continue to grow, going so far as to institute statewide bans on specific forms of ESG investing.

ESG Under Attack

Between these issues, it’s plain to see how the politicisation of this movement is inevitable. There is plenty on the line as ESG is under attack on one side - by a party whose political ideology is to keep the status quo - while the other side is scrambling to provide a solid foundation for progressive change and growth.

This environment makes it challenging for businesses - particularly in countries that have a conservative governmental faction that is able to access widespread support. In the end, businesses and individuals who want ESG to take root need to ask a very important question:

Why is ESG-driven change necessary?

Dealing With The Backlash

Companies and individuals already have what is necessary to answer this question. To begin, as troubling as the “anti-woke” movement is, it can result in further codification of ideals. It can push those who support ESG into establishing reporting rules to support further transparency.

This can help in driving down greenwashing, since scandals that involve greenwashing only weaken cases. However, greenwashing is a result of companies that maximise profit or shareholder value rather than delivering key values and looking out for stakeholders beyond shareholders.

In theory, establishing clear reporting guidelines and strong policies can make it clear what is actual ESG and what are greenwashing tactics. This way, advocates can directly point to legal sources as reasons that ESG does hold up. The European Climate Pact has a helpful overview for developing a lie detector.

Preparing For Change

The challenge is to persuade individuals to accept and adapt to change. Understandably, as a species, since we seek stability and security, we tend to reject notions of change, even when they are supported by overwhelming evidence of the necessity to do so. 

However, the ‘ESG movement’ is really a toolkit to help our economic system adapt and thrive in a time of change. If ESG is fundamentally understood as an opportunity gain and not an impediment to economic vitality, we can begin the discussion in earnest. That acceptance of the need for change must, however, be underpinned by ethical principles to give it enduring strength.

Visible Value

All of that can be boiled down to forming a centralised, codified ESG programme, backed by a mandatory regulatory framework, with regulated reporting and ratings systems, emulated across global regions or countries. More than what any such framework consists of is secondary, perhaps, to the value proposition it creates for economic interests. That value should encompass:

• Operating cost reductions via energy and resource efficiencies;

• Regulatory overview for governmental support and guidance;

• Profitability with sustainable product offerings via greater market access;

• Productivity increases via happier employees and greater talent attraction;

• Greater long-term investor interest and confidence as ESG investment pays off.

Winning People Over

The fact that ESG is a critical approach for companies looking to align with environmental, social, or governance credentials is a non-start for conservative thinkers. Also, the fact that anthropogenic climate change is unfolding before our eyes, with fewer places to hide from peer-reviewed guarantees that this is so, means that conservatism requires a framework to explain what is happening. 

A crash may well be inevitable this year. Whatever form it takes, the test of ESG will come in the form of the degree of resilience exhibited by companies that are thinking longer-term and implementing the framework to sustainably develop, deal with shocks, and remain profitable. Keeping the economic status quo is only going to exacerbate what will evermore be seen as a crumbling financial system.

Progress By Example

So to ‘win people over’, and in the process to ‘depoliticise’ ESG, we must focus solely on the positive attributes of adopting ESG-centric policies in our economic operating system. As we have seen, even when transparent empirical evidence is introduced to support an argument, there are always conservative elements that choose to ignore it.

Building a transparent economic system based on healthy profitability for people, planet, and pocket books, will be the only example to set.

Read more on the EU Corporate Sustainability Reporting Directive (CSRD), and follow our Featured Articles for more views on the transition to ESG.