This year, the European Union introduced a swathe of legislation that is completely and permanently altering how businesses respond to the climate crisis. Legal frameworks like CSRD and CRD are enforcing net zero strategies on some of Europe’s most climate sceptic businesses. Greenwashing has never been riskier to a business and fines have the potential to significantly damage business performance, creating a strong case for the future of ESG.
Across the pond, investors have been pulling out of ESG funds and company shareholders at companies have been actively opposing environmental and social initiatives, claiming the sustainability and purpose agenda has become ‘too politically charged’.
There are whisperings that this narrative is beginning to penetrate the UK and European markets with Think Tank Legatum Institute recently releasing its report ‘Woke Capitalism’, asserting ‘ESG regulations and practices have made the British businesses less competitive.’
This contradictory landscape is making it difficult for companies to approach ESG comms with confidence. While challenges will vary business-by-business, a good rule to follow is staying true to your company’s principles and tailoring your comms according to the audience you’re targeting. It’s not always easy, but it’s a methodology that can help define your position on ESG and hold your business accountable to the progress you promise to achieve.
External Communications: What this means for your Corporate Affairs strategy
According to McKinsey, ESG reporting and communications are not just about compliance, but about creating value, building trust, and contributing to a sustainable future. This puts internal and external communications at the heart of effective ESG related PR and Investor Relations. These activities play a critical role in articulating a company’s sustainability journey, fostering stakeholder engagement, driving long-term investment.
Yet many companies are still greenwashing due to a lack of understanding of legislation and best practice. Worse still, some greenwashing consists of outright deception, as we saw recently with Shell, Exxon and BP. Shell had committed to become Net Zero by 2050, yet internal memos stated it had ‘no immediate plans to move to a net-zero emissions portfolio over our investment horizon of 10-20 years’.
To avoid these pitfalls companies should build a bridge between internal and external communications channels to align data and stories that matter to both internal and external stakeholders. The power of PR and IR as ESG related value drivers is a huge opportunity for the brands and businesses that get it right, and a sure guard against greenwashing risks.
Internal Communications: How to manage within your own four walls
Internal ESG and DEI initiatives have skyrocketed in recent years and are showing positive results. McKinsey analysis of 1,000 US firms showed companies with more gender diversity within their leadership teams were 25% more likely to have higher profits than their peers who did not.
In spite of this, initiatives are increasingly caught in the anti-ESG/DEI crossfire. Companies like Zoom, Meta, Tesla, Lyft and Wayfair have cut DEI teams in recent years due to policy backlash. What these companies seem to be forgetting is the harm this type of move can have on employee morale and retention, as well as growth of the bottom line.
According to a recent survey by Boston Consulting Group, 78% of 18-24 year olds said workplace diversity and inclusion was important to them – highlighting where the opportunity is and why good ESG and DEI strategy needs to be prioritised in order to attract the next generation of talent who will soon make up the majority of the workforce.
From an internal comms perspective, messaging should be shaped around your company’s individual values and mission statement, and regular updates shared through internal comms channels such as newsletters and meetings to keep employees informed and engaged. Businesses who are particularly effective encourage open dialogue and feedback by creating forums and committees where employees can voice their ideas and concerns. Many also roll out training to provide a safe space for all to learn and question commonly held ideas.
By consistently reinforcing values in this way and creating a forum in which to debate, you create a culture where ESG and DEI feeds into people’s everyday working lives regardless of whether shareholders wish to prioritise or not.
Managing stakeholder backlash
If your ESG values do not align with investors or internal stakeholders, how do you proceed and avoid allegations of greenwashing or ignoring your commitments? Ultimately, it’s about embracing the challenge and embarking on a journey of education. If you’re surrounded by sceptics, you need to prove that an approach to ESG and DEI is not just the right thing to do, but also commercially vital.
Consumer preference for sustainability is widely documented. PwC recently reported that more than four fifths of consumers are willing to pay more for sustainable products, even as the cost of living pressures weigh. It’s important that you conduct market research and educate your stakeholders on the commercial incentives associated with an effective ESG approach. According to PHA’s clients, the answer is not necessarily in presenting the stick – i.e. legislation which will result in hefty fines if certain quotas aren’t met – but in presenting the carrot. What’s in it for your stakeholders? Why should they care and how can they benefit from the ESG agenda? Speak their language and you are in a much stronger position to win them over.
Staying true to your values
Navigating the ESG landscape is more complex than it’s ever been. The rise of the right wing, anti-woke movement and a desire to achieve energy security over addressing climate change is creating an environment that has people debating the future of ESG. Some believe the ESG hype cycle is over, but the rise of reporting and interest in taking action to reduce emissions means it lives on.
What does that mean for businesses dealing with competing priorities? Internally, it’s about aligning with your employees’ values to keep them engaged and committed to sustainability and inclusivity. Externally, it’s about educating stakeholders on the benefits of ESG initiatives, focusing on long-term value over short-term gains. Clear, values-driven communication can position your company as a forward-thinking leader, capable of thriving despite challenges.
In a divided landscape, this approach can help your business navigate the future with confidence and integrity.
You can download our free eBook ‘Future-proofing business: The media’s evolving relationship with ESG’ here.