ESG Backlash on the Rise, But Companies See Opportunity for Refinement - Report

As backlash against Environmental, Social, and Governance (ESG) initiatives looms, with 61% of U.S. companies anticipating a surge in the next two years, a report by The Conference Board underscores that many firms see this challenge as an opportunity to refine their ESG strategies and enhance communication.

The report, developed in collaboration with global CEO advisory firm Teneo, sheds light on the current state of ESG backlash and its potential trajectory. Key takeaways include:

Staying the Course: Despite facing criticism, a majority of companies remain unwavering in their ESG commitments. Only 11% of those affected are reconsidering their ESG programs' core elements. Instead, there's a marked shift towards linking ESG more closely with core business strategies. A notable trend is the preference for the term "sustainability" over "ESG" to resonate better with various stakeholders.

Understanding Backlash Dynamics: The backlash spectrum is broad, ranging from healthy skepticism to outright opposition. Paul Washington, Executive Director of The Conference Board ESG Center, emphasizes that while the backlash is often emotionally charged, companies should respond with data-backed objectivity, ensuring their ESG stances align with their primary business objectives.

Primary Backlash Sources: State officials and candidates top the list as the leading backlash sources at 31%, followed by federal counterparts at 21%. Employees and the media are also significant contributors, at 20% and 17% respectively.

Strategic Communication is Crucial: Amidst the backlash, 63% of affected companies are intensifying their focus on how ESG correlates with shareholder value. Andrew Jones, Senior Researcher at The Conference Board ESG Center, warns against dramatic shifts in ESG communication, suggesting that consistency is key to maintaining stakeholder trust.

Engagement Over Retreat: While 27% of companies have reduced external communication in response to the backlash, direct engagement with opposing parties remains minimal. The report advocates for a proactive approach, suggesting companies frame their ESG commitments within the broader context of responsible, profitable performance.

Matt Filosa, Senior Managing Director at Teneo, predicts that while political ESG backlash might persist, especially with the upcoming 2024 U.S. Presidential election, institutional investors will continue pressing companies on ESG risk management. This underscores the need for strategic communication about a company's ESG initiatives.

In a landscape where ESG principles are increasingly pivotal, companies are urged to view backlash as an opportunity for introspection and refinement, ensuring their strategies are both robust and effectively communicated.