The increasingly interconnected world and escalating poverty and climate change challenges have led to a surge of interest in Environmental, Social, and Governance (ESG) principles. While ESG has moved from a fringe topic to the forefront of business and investment strategies, questions persist about its real impact and how best to articulate its benefits. The concerns range from whether businesses are compromising their fiduciary duties to the continually evolving nature of ESG that muddies comparisons between businesses.
Amid these considerations, businesses, investors, and communicators must strive to effectively communicate the benefits of ESG. Experts and contributors from across the Business Fights Poverty community recently met to share their insights through a recent Forum Discussion held on the 11th May 2023 highlighted several strategies and areas for improvement.
Communicate what ESG really is – a risk framework
There is a growing consensus that ESG must be depoliticised. ESG is a material risk framework, and managing these risks is advantageous for business and, consequently, for shareholder returns. The political nuances often associated with ESG can lead to misunderstandings and conflicts of interest, which can be avoided by focusing solely on its role in risk management and specific business benefits.
Managing ESG risk is good for the bottom line
Studies show that businesses who manage their ESG risks tend to have better long-term shareholder returns. However, these benefits must be communicated simply to ensure widespread understanding among employees and shareholders.
Contributors to the discussion documented how ESG management resonates with a growing pool of investors prioritising the long-term health of businesses. Investors are more aware of systemic risks like climate change, inequality, and the erosion of rule of law, and understand the threats they pose to business performance. Companies neglecting their ESG exposure risk damaging their reputations, violating laws, and losing customer trust.
However, businesses and investors must avoid pitfalls, such as treating ESG as a separate initiative, short-term thinking, and making false or misleading claims. ESG is not a panacea, and challenges remain. Therefore, it is crucial to acknowledge these while promoting the advantages.
Avoid the jargon and focus on the specifics
To create a more coherent narrative around ESG, forum contributors suggested fostering a culture of accountability and transparency, openly documenting successes and failures, maintaining authenticity when communicating ESG benefits, evolving standards for reporting and disclosure, and investing in capacity-building and education.
Acronyms and jargon, it was noted, often serve to confuse rather than clarify. Instead of using the acronym ESG, contributors to the Forum suggested that businesses and investors should specify the particular environmental, social, or governance risk being managed and the benefits to the company and shareholders.
Together we must mature ESG understanding
Increased dialogue and collaboration with all stakeholders are crucial to foster a sense of ownership and promote shared goals. Transparent documentation of case studies, successes, and failures can improve the comparability and understanding of ESG management for business and investor performance.
Evolving and consolidating ESG standards and reporting frameworks will only improve transparency and comparability, allowing for a more accurate assessment of a company’s ESG performance. It can also help to mitigate ‘greenwashing’, where companies present themselves as more environmentally friendly or socially conscious than they truly are.
In conclusion, creating a coherent narrative around ESG management requires a multi-pronged approach encompassing collaboration, transparency, measurement, education, and accountability. It’s not an easy task, but the potential benefits for business, society, and the environment make it one worth pursuing.