As the anti-ESG political debate continues to mount, companies find themselves stuck in the center of this increasingly fiery battle between anti-ESG supporters and lawmakers and pro-ESG corporate stakeholders focused on managing ESG related risks and opportunities.
While some companies seem to be addressing it “head-on” by calling out “anti-ESG risks” in their 10-Ks, most are feeling the pressure to stay clear of being the target of anti-ESG campaigns. A recent piece from Teneo advises that companies take a hard look at their communication strategies to ensure the messaging clearly depicts how ESG initiatives links to their business strategies and long-term financial objectives. While acknowledging that the debate is far from over and there is no communication strategy that will make both sides happy, the article suggests organizations:
- Take inventory of current disclosures. Review annual ESG reports, websites, press releases, proxies and annual reports with fresh eyes to determine how consistent the message is in describing ESG strategies and how clearly these communications frame the direct linkage between ESG activities to the long-term business strategy. Reviewing peer disclosures can be a helpful exercise.
- Assess political and activism risks. Although large, well-known companies and those considered to be paving the way with ESG have received the most attention from some Republican lawmakers and conservative groups, any company should expect skepticism and questioning of their ESG initiatives. Understand specific risks as you evaluate communications.
- Refresh materiality assessments and renew stakeholder engagement. Take the time to review beliefs about the materiality of ESG objectives, particularly when there are ties to incentive compensation plans. Semler Brossy highlights key considerations to ensure pay programs reinforce the critical messages about ESG. And make sure you understand any changing viewpoints from key stakeholders.
- Continue to focus on the “G.” Governance, the least controversial of the three letters, should continue to be a priority especially as it relates to social and environmental matters.
- Prepare for tough questions. CEOs and institutions are (sometimes publicly) being accused of being inappropriately “woke” and that a commitment to ESG is in opposition to capitalism, so having a solid and consistent communication strategy is crucial for being able to address criticisms.
Meanwhile, ISS slipped under the radar with its new “global board-aligned proxy voting guidelines,” which are not, in fact aligned with board views. Instead, the new guidelines seek to “mend fences” with Republican lawmakers by recommending against ESG proposals. “We went out, we took their feedback, and we created this global policy. We believe it will satisfy many of the Red State pension funds and their legislatures,” ISS’s head of Investment Stewardship said in a Reuters interview.
Published on: March 24, 2023
Authors: Megan Wolf
Topics: ESG and Diversity & Inclusion, Executive Pay Legislation and Regulation
Director, Practice, HR Policy Association and Center On Executive Compensation