Communicators are stuck between the proverbial rock and hard place with ESG. Different factions of stakeholders are simultaneously calling for more and less attention on sustainability. Moving into 2024 and its contentious presidential election, communicators would be forgiven for feeling like the protagonist in Joseph Heller’s seminal novel, Catch-22. Yossarian, a pilot in WW2, desperately wanted to avoid war but couldn’t due to the consequence of invoking Catch-22.

Yossarian could be dismissed from service on the grounds of being “crazy” but the act of requesting to be removed from service was the process of a rational mind, so he would no longer be deemed crazy. Essentially, Yossarian could ask to be grounded, but as soon as he did, he would demonstrate his fitness for combat missions.

As communicators, we face a similar “damned if you do, damned if you don’t” outlook for ESG in 2024.

Republican Orthodoxy Will Likely Be Anti-ESG

Leading Republican presidential candidates Donald Trump, Vivek Ramaswamy, and Ron DeSantis, have taken a hard line against ESG. For them, fighting ESG has become a big part of the broader battle against "woke" capitalism.

Approximately 100 anti-ESG bills have been introduced in state legislatures around the country, which have aimed to block state entities from considering ESG factors when making investment decisions, prohibit and defund state entities’ diversity and inclusion efforts, and protect industries.

There is backlash being acted on by consumers and shareholders towards companies. A survey by The Conference Board showed that nearly half of companies have already experienced ESG backlash, and 61% expect it to persist or intensify in the next two years.  

While the financial services industry has faced the vanguard of this push, a majority of US companies are concerned they will face opposition from federal and state officials, employees, consumers, business partners, the media, and investors.  

However, Investors and Stakeholders Still Demand It

At the same time, recent polls show little support for the ‘anti-woke’ message and there is still investor interest in and demand for investments that align with their ESG priorities and, as a result, pressure for companies to disclose and communicate their ESG performance. According to Morningstar’s Global Sustainable Fund Flows report, global sustainable funds attracted inflows of USD 13.7 billion in the third quarter of 2023. In comparison, the global mutual fund and ETF universe suffered outflows. Additionally, an analysis by Farient Advisors of shareholder proposals in 2023 shows that “Climate-related proposals were the largest group of environmental shareholder proposals by a significant margin, representing 80% of environmental proposals (and 17% of all proposals) submitted in 2023.” There were 150 climate-related proposals this year, up from 130 proposals in 2022 and 83 proposals in 2021.

What should communicators do? Three Guardrails

Unfortunately, there is no one-size-fits-all all solution to the ESG quandary – at least not until there is some amount of resolution in the public discourse. However, there are three guardrails communicators might do well to follow to avoid the worst of the flak.

• Ditch “ESG” – Somewhat controversially, I believe there is justification to limit, or abandon all together, the term “ESG.” Over the past 10-15 years, it has been a helpful moniker and shorthand for suggesting companies should behave more responsibly and sustainably but it was doomed from the start due to its impreciseness. If you ask 10 people what exactly ESG is, you will get 10 different answers. ESG’s critics have seized on this vaguery to suggest it means things it doesn’t and, to quote the terribly effective provocateur, Stephen Bannon “flood the zone with shit.” At this point, the term “ESG” has become toxic and a lightning rod for criticism.
• Get Specific – Ditching “ESG” doesn’t mean you must throw the baby out with the bathwater. Instead, communicate with more precision about the climate, sustainability and social issues that are relevant to your business. In its most simplistic interpretation, this can be swapping “ESG” with “sustainability.” But wise communicators will use the challenge of eschewing the umbrella ESG term to zoom in on specific topics like greenhouse gas emissions, biodiversity, carbon capture, deforestation, energy and water management, etc. While it may take more work to communicate about these more nuanced topics, you will achieve a more substantive dialogue and avoid the “ESG” backlash.
• Focus on Materiality First – The primary argument against “ESG” from critics is it wastes resources and distracts from the ultimate goal of profitability and maximizing shareholder value. There is an opening for communicators to talk about sustainability as a material issue for the business. Through a materiality assessment or by referencing standards and frameworks like the International Sustainability Standards Board’s S1 and S2, a company can identify the sustainability-related risks and opportunities that could reasonably be expected to affect its prospects. By focusing your communications strategy on information that, if misstated or omitted, could be reasonably expected to influence investor decisions, you can easily answer any pushback about why your company is dedicating resources on sustainability – it’s to become a better, more profitable company.

The controversy around ESG has been raging for years and is only going to intensify in 2024. Communicators would do well to reexamine their “ESG” communications strategies to ensure they are fit for purpose and are designed to avoid the risk of backlash while maximizing the return.

Even with the best-laid plans, there exists a very real possibility of either getting singled out for doing too much or too little on sustainability. Like Yossarian’s Catch-22, we can only expect to be caught in the middle of a war. For this reason, putting forward a pragmatic message and position along with a robust crisis plan is a must in 2024.

Taylor Fenske is a Senior Vice President at Cognito and part of Cognito’s Sustainability Practice