2021: The year to tell your ESG story
ESG is erupting, and the world is noticing.
Investment funds that emphasize positive environmental, social and governance performance — not just traditional financial metrics — raised record capital last year, according to Bloomberg. And corporations were involved in raising another $490 billion by selling “green, social and sustainability” bonds the same year. Both figures mark all-time highs.
There’s something happening here: a measurable shift in expectations furthering demand for ESG reporting in the market. The 2021 Edelman Trust Barometer reports two-thirds of people believe CEOs should “take the lead” when it comes to addressing social issues, rather than waiting to be forced into action by social pressure, their shareholders or other outside forces. Three-quarters, meanwhile, believe CEOs should hold themselves accountable to the public — not just the board or stockholders. The open question is how such demand is impacting, or will impact, buying behaviors.
Part of that answer will depend on what customers know.
In an effort to stay ahead of growing ESG awareness, many companies and institutions are taking action. 3M, for example, announced a substantial commitment to ESG practices. Goldman Sachs stated ESG will be a “core” piece of its strategy going forward. And 49 of the top 50 asset managers have signed onto the United Nations Principles for Responsible Investment. When a movement is prompting action among top corporations, it’s time to take notice.
Washington is paying attention. The Biden administration created a new ESG-focused role at the SEC, and the commission recently announced its intention to “enhance its focus on climate-related disclosure” in public filings. Moody’s believes a “green stimulus” approach to global economic recovery efforts will likely amplify existing ESG trends, with “sustainable-debt issuance” projected to hit $650 billion in 2021.
The message is clear: investors, consumers and government leaders want to see companies commit to environmentally sound, socially involved, transparent, ethical operations. There’s measurable momentum here. The calls will likely grow louder.
But what can corporate leaders do to ensure their well-intentioned actions aren’t just “announced,” but are clearly understood — and very well articulated — to their most important stakeholders and other key audiences?
Building an ESG Profile
The term ESG represents a collection of factors used to gauge a company’s adherence to sustainable and ethical operations. It is both an investment philosophy and a measuring stick.
Research firms, nonprofits and asset managers essentially grade companies on various metrics within these three key areas.
The environmental examination can include a wide range of issues including carbon emissions practices, the stewardship of natural resources and vendor accountability. The social lens examines both internal and external activities, including the company’s approach to human rights, community involvement and hiring practices. Finally, governance covers all aspects of an organization’s structure, leadership and practices.
Combined, ESG provides valuable risk mitigation, a natural conduit into communities and markets, as well as high corporate standards and accountability. Value at many levels.
Sharing the Stories and Successes
Viewed as an investment, the highest costs of establishing sound ESG practices come from efforts to align with a company’s desired goals. These are the big moving pieces that can have an impact across a company, from procurement to product design, not to mention HR and board compensation.
The second tier of cost and effort is associated with communicating successful ESG practices with key stakeholders: consumers and investors. These efforts can be as varied as the constituents in the conversation. A corporation appealing to environmentally aware consumers, for example, may choose to tell a different ESG story than one with hiring needs driven by social alignment. A company that places the highest value on a particular type of investor may build their ESG efforts to better showcase their corporate structure.
Measuring the Impact
How do you know that your ESG messaging is reaching the right people? And if it is reaching the right people, is it actually having the desired impact?
Spending money to dial into an ESG strategy, then communicating your efforts without checking on the success of the message and impact on key stakeholders, skips the last and arguably the most critical step: Asking if it’s working.
Consider these questions:
- Who is aware of your commitment to sustainability? Do your efforts matter?
- Do your ESG efforts bring value to your customers? Your community? Potential employees you may want to hire, or internal employees you seek to retain?
- Does your ESG performance provide your company any competitive opportunities or advantages?
- How well do your efforts align with advocacy groups?
- It’s critical to communicate the ultimate values — why people should care — on an audience-by-audience basis.
A rigorous investigation — including journalistic interviews with stakeholders, community members and advocacy organizations — can uncover answers. Just as importantly, it can identify gaps, high-value areas where your communications efforts are falling a bit short.
The investment floodgates are open. Will your ESG story help you capitalize on the opportunity? Announcing your story is not enough. Contact us today to learn more about how we can help ensure your story is not only well told but valued by all the right audiences — for all the right reasons.