The ESG Review: Engagement and dialogue critical to smoothing the ESG bumps

August is silly season in the media. Even moreso when it comes to ESG-related news, which has been notably absent in recent weeks.

During the summer peak though, several long-read pieces that take stock of ESG’s latest political shenanigans, investor pressures and corporate moves have been published. They’re well worth a browse for understanding how the mood music around sustainable change, measurement and reporting, and - dare I say it - “woke capitalism” has evolved this year.

For me, McKinsey’s collection of perspectives on how to make ESG real stands out. It covers levels of sophistication in corporate ESG programmes, the need for clear strategic application with rigorous benchmarking, and practical application of ESG in businesses with shifting priorities and voices surrounding them.

But its final section speaks loudest to communicators, covering ‘the engagement and dialogue of social licence’. It makes the point that at a time of such economic and political turmoil, and upheaval in many people’s lives, ESG action may encounter bumps that see stakeholders question the rationale and the ambition. Engagement with those parties, and regular dialogue that explains and seeks feedback, is vital to oil the cogs by sharpening strategy, demonstrating the business proposition to investors and maintaining cadence in information-sharing, it says.

Another post-holiday read well worthy of a few minutes is The Economist’s piece on why ESG in itself won’t safeguard the planet, so corporate environmental action should focus solely on cutting emissions. It’s the ultimate one-dimensional approach, but part of a broader special issue on ESG that sets out where it has gone wrong, and what’s required - for investment markets at least - to put it right.

Meanwhile, the Financial Times has covered the Republican backlash against ESG and, yes, woke capitalism in the US. It outlines how several major investment banks are now courting some states with fossil fuel credentials rather than risk being isolated by them, as coal-loving West Virginia has done. The FT depicts this as a “swinging of the pendulum” by Wall Street towards being more embracing of fossil fuel investments in light of overly prescriptive shareholder change proposals and the Ukraine war.

And this Harvard Business Review piece makes the case for leaders to stay the course over ESG change rather than seeking instant plaudits for positive reports, particularly as doubters and detractors increase calls for greater scrutiny.

Above all, taking stock across the ESG landscape points to a need to take the rough with the smooth, to address bumps with engagement, and to sharpen the pencil on how strategy and achievements are communicated. As scepticism grows and the environmental focus increases again ahead of COP27, expect those bumps to become more profound.

The ESG News Review is written by Steve Earl, a Partner at BOLDT

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