The ESG landscape in 2022 is more difficult than ever to navigate; executive leadership teams have the challenge of balancing the interests of their shareholders, employees, customers, and community.

We are in the era of the “conscientious consumer” where more than ever before, a wide range of stakeholders care deeply about ESG and a growing percent of consumers are willing to pay a premium for healthier, safer, more environmentally and socially conscious products and brands.

According to a survey conducted by PwC, 83% of consumers think companies should be actively shaping ESG best practices, 91% of business leaders believe their company has a responsibility to act on ESG issues and 86% of employees prefer to support or work for companies that care about the same issues they do.

Companies have woken up and realize that strong ESG practices are a “must have”, not a “nice to have”.

It is critical that companies take meaningful and industry appropriate steps to set and achieve ESG goals and that the progress is measured in a programmatic, factual, and consistent fashion.

Being labeled as a company that engages in “greenwashing” can deeply fracture the relationship with all your stakeholders and irreparably damage the trust your consumers / employees have in the company.

So, what exactly is “greenwashing”? Greenwashing is the practice of using marketing and PR tactics to overamplify your ESG efforts for the purpose of gaining greater favor from consumers, investors, employees, etc.

A company may not intentionally set out to “deceive” consumers but may fall victim to jumping on a marketing hype train that oversells a well-intentioned initiative that is not yet viable.

To feel confident in your ESG initiatives, first and foremost, it is imperative that the goals set forth are directly relevant to your industry.

ESG is a catch all for how your company pulls together a range of programs: environmental, social, governance. These programs need to be tailored and made relevant to your companies’ industry. Consider assembling an internal team around formulating your company ESG policy that correlates with your business imperative.

Each company must put on their thinking cap and come up with a baseline of general principles and then make these principles come alive. It needs to be relevant to your industry and business.

For example, a major financial services company such as Visa / Mastercard might have, as part of their program, “data for doing good”. You would want to have programs that measure data for financial inclusion and accessibility.

For example, if you are a financial services company, it doesn’t make sense for you to be opining on fossil fuels, it just doesn’t apply the way it would if you were an oil and gas company.

If you are an oil and gas company however, having renewable energy sources will complement and offset the concerns investors would have about you being a responsible fuel company.

Major institutional shareholders will look at your policies on environmental responsibility if you were, say, a fossil fuel company, they will evaluate, select, and invest based on how you are doing on important efforts to offset to fossil fuel concerns i.e., such as focusing on renewable energies.

For a manufacturing company the “social” component of ESG may be more applicable to your business and investors make look for things such as community impact/support i.e., through apprenticeship/vocational partnering programs. This would be more relevant to the manufacturing business than (hypothetically speaking) protecting consumer data or other factors that are irrelevant to the core of the manufacturing business.

Navigating the ESG landscape can seem daunting given the wide array of metrics and reporting options available. It is important to implement an industry specific approach – you need to pick the frameworks that are most appropriate for your industry and pick the rating agency where you will be most rewarded.

More than ever, ESG is a necessary component to ensuring the health, competitiveness, and longevity of a company. ESG investing is surging and now makes up 33 percent of total U.S. assets under management. Investors will increasingly be considering ESG factors when evaluating companies. Having a strong narrative will enable your company to have access to bigger and differentiated pools of stickier capital.

In response to increased investor activity around ESG and the potential for greenwashing, the SEC has formed a taskforce aimed at investigating potential misconduct related to companies’ sustainability claims. Gary Gensler, who took over the agency in April, has said his staff is working on a rule to boost climate disclosures by stock issuers, and that the regulator remains focused on ESG issues.

Boards and executive leadership teams would be well served to stay ahead of potential upcoming increased rules and regulations by proactively reviewing company policies related to environmentalism, human capital management, sustainability, and other ESG topics that are material to your industry.

Having a clear ESG position and messaging in your annual proxy and website are now a best practice. Consider adding ESG oversight to a committee such as Nominating and Governance. There is significant positive impact to being proactive on ESG.

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