The ABC of ESG

You really would have had to be living under a stone not to realise how big a deal ESG has become. But many organisations are exhibiting a “rabbit in headlights” approach as to what to do about it. I think that is understandable and a pause to think may well be wise. However, as a demand on everything we do ESG is certainly not going away – “greenhushing” is not a long-term strategy (for a definition of what that means read on!) But ESG is not CSR. It is much more profound and the risk of getting it wrong and pitchforking into a crisis is a real one.

This short blog will in no way answer all the questions you may have – I hope I haven’t been too misleading with the title. But hopefully this quick read may constitute the start of an important learning journey in terms of one of the biggest challenges and I believe opportunities facing PR and crisis communication practice now.

What is ESG?

ESG stands for Environmental, Social and Governance. It is way of judging organisations by the impact they have on the environment, especially in how they are addressing climate change; how an organisation manages its relationships with its wider stakeholders including its employees, its suppliers and the communities it operates in; and, how it in effect governs or runs itself which would include issues such as executive pay, internal controls and so on.

As a concept ESG is less than 20 years old but it can be seen as perhaps having its roots in “stakeholder capitalism” – the idea that businesses were not just there to make a profit for their owners but needed also to consider their impact on the wider community. Hence the links to CSR.

However, a number of issues have turbo-charged the concept not least growing concern about climate change. Investors are increasingly not just expecting companies to explain their strategy towards climate change and ESG more generally but are asking for a quantification in financial terms of the risks they run from not actively delivering on the ESG agenda. Those risks could be from consumers shunning their products, investors declining to invest, bankers to provide finance, skill shortages as employees making ethical decisions as to where to work and so on.

So, what do you as PR and crisis communication professionals need to know?

Firstly, don’t think ESG is just for large corporates, such as those listed on stock markets. It may be more noticeable in the strategies of such organisations but it is now fast moving down their supply chains to reach SMEs too. It won’t be far off before public bodies and voluntary organisations find themselves being asked similar questions about ESG to those very large corporates.

Also, the desire for all stakeholders, including customers, to understand how ESG impacts the businesses they deal with and buy from means it is necessary to be able to compare one entity versus another. This means some kind of standardisation is required.  Globally if not internationally.

The European Union Sustainability Reporting Standards (ESRS) are one manifestation as to how this standardisation of measurement is being brought about. The Standards will apply to all corporates with more than 250 employees which will bring into scope a huge number of businesses. And there is a great hurry.  Companies should be able to report in this way by 2026.

Whilst the UK may not be in the EU any longer the IFRS (International Financial Reporting Standards) is moving in tandem to much the same end game.

It will be worth checking in with your legal, compliance, investor relations or finance department to see what their level of understanding is of these regulations and how it might apply to your organisation.

The end of “greenwashing”

One of the desired outcomes of all this standardisation of reporting is to end “greenwashing”, or making misleading environmental claims about a product, service or organisation to give the impression they are better for the environment or less harmful to the environment than they really are.  Recent EU research found that nearly half of the “green online claims” being made by companies were exaggerated, deceptive, or false.

At the other end of the spectrum, we have “Greenhushing.” This is when companies choose radio silence on making any ESG claims. That may not be because they don’t feel the subject has any relevance to them. It could be that they feel they are too late to the game, that perhaps they should go even further but do not feel ready to, or perhaps they feel consumers may think a green product does not work as well. Whatever the reason the pressure to have a publicly stated ESG strategy will prove hard to resist.

Even without the new reporting regulations the policing of “greenwashing” has claimed a good few scalps. Most notable of last year was the censure by the Advertising Standards Authority (ASA) of HSBC. The posters that drew complaints sought to showcase HSBC’s financing of renewable energy and its tree-planting initiative. But the ASA accepted the points made to it that the claims were misleading whilst the bank was “simultaneously involved in the financing of businesses that made significant contributions to carbon dioxide and other greenhouse gas emissions and would continue to do so for many years into the future.”

The ASA’s finding has considerable ramifications. It seems to suggest that every aspect of an organisation must be working in tandem to support any ESG claims made and advertising or marketing material.

The ASA was in effect enforcing the UK Competition and Market’s Association’s (CMA) Green Claims Code, launched in September 2021. Fortunately, there is really helpful online information from the CMA on the Code and examples of how organisations will fall foul of it.  More reading well-worth doing.

Principles to bear in mind

Firstly, make sure any commitment to ESG comes right from the top of your organisation. This has to be led by the senior leadership team and the delivery against it should form part of their stated objectives. ESG can never be a bolt-on and to try to make it so is a big risk.

Seek to satisfy yourself that any ESG commitments apply to the whole of the organisation and are pulled through across all its operations and supply chains.  Remember the old adage: you are only as strong as your weakest link. Those weakest links are risks and crises waiting to happen.

ESG commitments require a pathway to change and milestones on the way. Stakeholders expect real plans to be found against the pledges. This is a useful paper on delivering against climate change commitments in particular.

Do your research. This is a fast moving field and if you are to engage with it begin monitoring the developments now. Seek out training and link up with other professionals working in the sector.  Look to your membership bodies such as the CIPR and the PRCA – both are actively engaging with the requirements ESG is making on PR and crisis communication professionals.

Finally, I did mention opportunities for PR and crisis communication professionals too.  ESG is such a huge challenge senior leadership teams will really appreciate support from the communications team. This is the opportunity to be the catalyst Professor Anne Gregory writes about in her book with Paul Willis: Strategic PR Leadership, bringing together the interests of all stakeholders, the organisation and hopefully the planet too.