The Financial Times piece on the investment and reputation pressures that the defence sector faces as ESG investors shy away from it raises an important point about corporate communication.
It’s that when it comes to considering what businesses do and don’t want to share in the public domain, the market environment - and public and investor calls for sustainable change - is forcing their hand.
Put simply, there is a growing need to explain, within reason, what they are doing and why they are doing it. You might say that has always been the case, but of course the reality is that businesses in sectors that attract the most public criticism have historically taken more time than others carefully crafting their external communication, pouring over individual words, and guarding conventions about how they do and don’t do things. The process of ‘explanation’ to the outside world is quite different to that of sectors that, while with their own risks and stakeholder demands to manage, actively court editorial.
To a degree, the media environment and a desire to be more open in order to benchmark long-term change and engage more transparently has been driving shifts in communication. As this book on the rise of social media and its implications for brands (sorry, sorry..) concluded a decade ago, engagement is no longer an option, it has to take place in some form.
“Some executives, particularly in Europe, fear the growing scrutiny, a lack of precise investment definitions and new sustainable finance proposals could ultimately lead to their sector being shunned completely, making them pariahs of the investment world,” is how the FT sums up the current leadership dilemma in the defence industry.
It adds: “Some executives are now fighting back. Several of Europe’s largest defence companies, including France’s Thales and Britain’s BAE Systems, have stepped up their efforts to explain what they do and stress their contributions to economies and national security. Both BAE and Thales last month held ESG-focused seminars.”
In truth, the sectors most in the sights of activist investors, political scrutiny and activists on their doorsteps have been stepping up their efforts to explain through shrewd communications for some time. But as ESG investors, particularly the large institutions, consider pulling away, that need to explain intensifies, and is made more difficult by the lack of clear ESG frameworks bringing objectivity to bear in parallel with other investor data and attitudes.
The reality is, those sectors might argue, that their very existence is part and parcel of a sustainable future, or the way in which they intend to change is.
For communicators, it means strategic nous becomes even more important, but so does knowing what investors care about most, and what areas of the business are most important to explain. As they balance risk with necessity, expect data analysis of material ESG factors to play a more central role in strategic planning - an obvious statement perhaps, but this is surely an area where objectivity is at a premium.
There was another step forward in that area this week with the launch of ESG Book, a free - barring the analysis - “public good” data platform. “Companies can use ESG Book at no cost to disclose, manage and keep ownership of their ESG data in real-time. The data is then available to users for free, with a charge for analysis of the data, such as temperature scores,” said Reuters.
Meanwhile investment giant KKR took a different approach by launching its Sustainability Expert Advisory Council in a bid to bring greater rigour to its ESG-led activity. Robert Eccles, founding chairman of the Sustainability Accounting Standards Board, will lead it.
Standards-driven data and human advice will need to come to the fore, particularly where change and commitments need very careful explanation.
The ESG News Review is written by Steve Earl, a Partner at BOLDT.
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