How to Balance ESG MarCom and Reputation

ESG has become a contentious issue in some U.S corporate circles. According to FactSet, ESG was mentioned by just 74 S&P 500 companies on corporate conference calls held during the first-quarter earnings season, which was the lowest count in nearly three years and down from a peak of 156 in the fourth quarter of 2021. Notably, BlackRock CEO Larry Fink – for the past few years a leading proponent of ESG investing – said he refuses to use the phrase ESG now because “it has been totally weaponized” by political factions on both the left and right. As the U.S. political and social climate around ESG issues intensifies, companies are grappling with how to navigate these waters. Some of them are making a major mistake by muting their ESG stories, which results in their losing control of their narrative. In fact, ESG is a key pillar of building a company’s reputation. Well-managed ESG communications can improve a company’s valuation, but poorly managed ESG can hurt a business’s bottom line. With a nuanced and strategic approach, businesses can succeed.

Why ESG Has Become a Challenge for MarCom

ESG is as important as ever – possibly more so. While ESG focuses on “non-financial” performance indicators compared to classic investor metrics like profit and earnings-per-share, ESG issues have material, financial impact on a company’s access to capital, operating costs, and long-term competitive standing. ESG reporting and metrics are also an important indicator of a company’s overall health, ESG criteria give investors a holistic risk lens to evaluate a business or investment’s key ESG-related risks. ESG has also become, increasingly, a mandate for multiple stakeholders beyond IR to manage.

But talking about a company’s ESG commitments can be a political mine field. Businesses that prioritize ESG in their public communications can risk accusations of greenwashing, or misleading the public into believing that a company’s products and service are more environmentally friendly than they actually are. On the other hand, not talking about ESG can result in a company losing control of its narrative, resulting in consumers, employees, and investors being swayed by outside influencers without the company participating in the conversation.

The stakes are getting raised considerably as ESG becomes a game of political football among legislators. For instance, BlackRock also became the target of high-profile efforts by state officials, including Florida Governor Ron DeSantis, to pull public pension money from BlackRock. Florida withdrew $2 billion from the firm as punishment for its ESG stance. The state of Florida accused BlackRock of putting social causes ahead of its obligation to deliver financial returns.

All told, in 2022, least seven states have pledged to pull more than $3 billion collectively from BlackRock, which manages $8 trillion in assets, citing concerns that taking factors such as climate change into account when investing in companies does a disservice to shareholders.

Meanwhile, the U.S. Senate recently voted to overturn a Labor Department rule allowing retirement plans to consider ESG factors when making investment decisions, following a similar vote by House Republicans.

Some investors have also pulled back. Inflows into US sustainable funds hit their lowest level in seven years in 2022 amid the growing backlash, according to a report from Morningstar. The outflows continued through the first half of 2023, according to Refinitiv.

This is quite a turn of events from the groundswell of support for ESG that rose in 2020-2022. In 2021, a relatively small fund known as Engine No. 1 surprised corporate America after it convinced some of Wall Street’s biggest investment firms to approve its proposal to replace three directors on Exxon Mobil’s board, citing a decarbonizing world.

The controversies rocking the investment world reflect a broader backlash against “woke marketing” erupting across the political and social landscape. Businesses such as Adidas, Anheuser-Bush, Nike, Target, and Chick-Fil-A have faced considerable blowback for their public support of diversity, equity, and inclusion in 2023 as the run-up to the 2024 election year builds. But beyond the political fall-out, companies face some other challenges when balancing ESG with corporate reputation:

On top of all that, ESG has suffered a black eye from a financial performance standpoint. Major ESG funds are performing worse than the S&P 500 this year. BlackRock’s primary ESG fund, ESGU, has fallen 18.3 percent, while the S&P 500 index is down 16.8 percent.

But is the problem as bad as recent headlines might suggest?

The Upside of a Strong ESG MarCom Focus

Businesses that lean into their ESG MarCom efforts can and do benefit from a reputation management standpoint in many ways.

Consumers and Investors Both Care about ESG

First off, a variety of audiences ranging from consumers to investors care very much about ESG but for different reasons, and they want to know what a business is doing to become better corporate citizens. Recent research from the Allison+Partners/Headstand Purpose Center of Excellence reveals more than half of American adults surveyed (56 percent) have positive views of the term ESG. Nearly two-thirds (65 percent) want companies to continue their ESG efforts. This is especially true for U.S. Millennials: 71 percent have positive viewpoints on ESG, and 75 percent want companies to continue making progress.

Investors need companies to continue talking about their commitments to ESG. As noted, ESG criteria give investors a holistic risk lens to evaluate a business or investment's key ESG-related risks. For instance, when deciding whether or not to invest in Coca-Cola's stock or buy its debt, ESG investors will evaluate and assess these different risks and their short-term and long-term impacts on Coca-Cola’s business performance and competitiveness. So, it behooves Coca-Cola to tell its story.

This is true of any company that is publicly traded. For instance, by proactively investing in electric vehicles in key markets, UPS is actively managing and mitigating its long-term climate risks. UPS knows that businesses could be at particular risk of getting upended by future government attempts to protect the environment. And so UPS discusses these efforts publicly.

Measuring a company’s environmental awareness could also unearth companies that could be better positioned for the future. Companies that care about climate change may be better prepared for its repercussions, whether that means potential flooding damage at factory sites or the risks of increased wildfires. But businesses need to clearly and proactively discuss what they are doing to make the world more sustainable in order to educate investors.

Employees and Job Seekers Hold Employers to ESG Standards

ESG matters very much to job seekers and employees. Businesses need to communicate their ESG commitment to these critical stakeholders in order to attract and keep talent.

According to a recent IBM study, 70 percent of employees find sustainability programs make employers more appealing, and 80 percent want to help their company reach climate or ESG goals. A global survey of Gen Z and Millennials found that two in five respondents have rejected a job or assignment because it did not align with their values.

Businesses that fall short of their ESG commitment face a potential backlash with their employees, too. Employees at businesses ranging from Amazon to Google have been vocal critics of their employees for perceived shortcomings in their ESG commitments. This kind of unrest creates an ongoing reputation management problem.

Regulators Need to Be Courted Effectively

There is also the hard reality of regulators to consider. In Europe, the Corporate Sustainability Reporting Directive (CSRD) will be phased in for the 27 EU countries starting in 2024. This will require businesses to report the risks that their activities pose to the environment and society. The required disclosures will go beyond environmental and climate change reporting to include social and governance matters (for example, respect for employee and human rights, anti-corruption and bribery, corporate governance and diversity and inclusion).

And, the CSRD will apply to U.S. companies with operations Europe.

And on top of that, this requirement is coming to the United States. In 2022, the SEC proposed a rule that would require a domestic or foreign registrant to include certain climate-related information in its registration statements and periodic reports, such as on Form 10-K. Although many businesses already disclose sustainability data, the SEC would make sustainability reporting mandatory. That proposal is expected to be passed in 2023.

What Is the Answer?

We believe it’s essential that companies take a strategic and nuanced approach toward ESG MarCom in order to build a positive brand reputation. This means:

Align Your ESG Story with Your Values and Growth Strategy

Your growth strategy should always guide your long-term operational decisions, whereas your values define what you stand for every day. Patagonia has embedded ESG in both its values and growth strategy and makes no secret of that. Every decision the company makes from product sourcing to MarCom are guided by its values. The point is, understand first how your commitment to ESG aligns with values and growth strategy. Why? Because:

• The degree to which your ESG commitment is aligned with values and strategy should determine the degree to which you talk about ESG in your MarCom efforts. When all these elements are aligned, your ESG MarCom outreach is authentic and less vulnerable to greenwashing accusations. But when these elements are aligned poorly, a business puts itself at high risk for committing a MarCom misfire.

• This alignment also helps you assess how to react to blowback when it happens. If your ESG alignment is true and tested, you’ll know you can ride out short-term controversies with your long-term strategy and values. If you are being criticized for a MarCom campaign that is well aligned with your values, know that pulling back your MarCom will probably create a major cultural rift with your own people and cause investors to call into question your commitment to your growth strategy.

Plan for Blowback

Time and again, businesses have found themselves caught unprepared for ESG backlash from activists across all political spectrums. As a result, some businesses caught in the crosshairs have reacted with muddled, indecisive positions. Doing so risks making a problem worse. Unclear and indecisive responses can confuse audiences and alienate core customers and other stakeholders who might actually disagree with critics of a company’s ESG efforts. Your gameplan should include:

• Actively monitoring your website, social media, and every other channel for signs of trouble brewing. Using first-party data on your website and social listening are essential.

• Developing ready-made messaging when you anticipate an issue arising.

• Having a rapid-response process in place for disseminating your message across all digital platforms.

• Developing a longer-term MarCom strategy that includes SEO-optimized content to raise awareness for your position on an issue, PR, social media, and more.

Plan ahead. Don’t wait for a problem. (And we can help you with all this.)

Nuance Your Story

We believe it’s essential that companies realize there is no one-size-fits-all approach toward ESG MarCom. We suggest segmenting your audiences carefully into different buckets and tailoring your outreach accordingly:

• Experts are professional investors. They need to know the interplay between ESG and business performance to do their jobs. They view ESG strictly as a risk to a business. They need, foremost, one thing: data. Hard core data. Not stories. They’re less interested in compelling narratives and storytelling although clear communications are always essential. To meet their needs, providing a dedicated site with links to downloadable data is essential.

• The interested audience consists of employees, job seekers, consumers, and influencers. They want easy to digest, media rich content addressing key environmental and social issues. They are looking for alignment with personal value and priorities.

• The knowledgeable audience consists of partners, policy makers, nonprofits, key opinion leaders, and B2B customers. They are the in-betweeners. They often have both a personal and professional interest in a particular environmental or social issue. They respond to a mix of fact based storytelling, explainers, and data presentations. We see them accessing content at length in sustainability sections, but also looking more broadly at content across corporate websites.

Segmenting your sustainability audience into groups such as “interested,” “knowledgeable,” and “expert” doesn’t mean one is more important than the other. It’s a convenient way to understand the factors that influence how each audience thinks and the methods that you can use to communicate with them.

Nor does this segmentation shield you from being the target of politically motivated attacks on your ESG MarCom outreach. But our recommended segmentation will guide you on how to respond to issues that arise as you communicate your position with your audiences that matter most:

• All year-round when you discuss your commitment to ESG.
• When a crisis hits and you need to rally your core audiences around your company.

As always, knowing your audience is key – and using first-party data on your website can help you do that.

Contact Investis Digital

By aligning your ESG commitments to your long-term corporate strategy, you can ensure that your MarCom efforts with ESG:

• Have a positive impact on your brand’s reputation.
• Reflect your long-term vision and growth objectives.

By segmenting your audience, you can nuance your ESG MarCom outreach for the audiences that matter most to you. 

Regardless of short-term political blowback, in the long run, you will stay true to your north star. We can help you do that by creating an authentic ESG narrative that reflects your business needs. Contact us to learn more.