Why the ESG backlash has little effect on corporations

Politicians' manufactured controversies are having minimal impact in boardrooms.

Annual corporate shareholder meetings have become the epicenter for public debates around ESG practices and investments. In 2023, shareholder meetings are more likely than ever to promote the value that environmental, social and governance and corporate social responsibility programs provide to their businesses’ bottom lines.

As “anti-woke” politicians continue to manufacture controversies to derail commitments to corporate citizenship, their influence is having minimal impact in the boardrooms of America’s top companies.

The cacophonous rancor of a vocal minority may create a lot of noise, but CEO and C-suite leaders continue to prioritize delivering on the values of purpose. Why? Because research shows that pro-social and pro-environmental behavior strengthens their business.

ESG backlash is not producing a substantive response from corporations. Rather, companies are merely choosing their words more carefully when describing their ESG and CSR work to avoid controversy. “Green hushing,” a term used to describe a company’s taking steps to stay quiet about its climate strategies to avoid criticism, is a communications strategy CEOs are testing to shed the target on their backs. But don’t interpret the way communications is being calibrated as a sign the importance of ESG is decreasing.

They may be talking about the work in more subtle terms, but companies know that their stakeholders — investors, employees, customers and communities — hold them accountable for their commitments to diminish climate risk, generate economic opportunity and increase diversity, equity and inclusion. And they intend to deliver.

As the CEO of one of the world’s largest financial institutions, Jamie Dimon of JP Morgan Chase & Co., is one such example of a growing chorus of executives in 2023 who continue to double down on making a strong business case for corporate responsibility. In his annual letter, Dimon said that “research has shown that purpose-driven companies achieve stronger business results and have greater impact by doing better for their customers, employees and shareholders.”

Dimon is far from being alone in these beliefs. Four other companies come to mind that have just recently had their annual shareholder meetings: Johnson & Johnson, BDO, Bank of America and Coca-Cola.

A 2022 KPMG survey of U.S. CEOs found, “With the potential recession testing CEOs’ commitment to their ESG strategies, reducing investment may lead to long-term financial risks. This test comes at a time when CEOs have made significant strides in tying ESG to profitability, with 70% of U.S. CEOs saying that ESG improves financial performance, compared to 37% last year.”

This year’s annual stakeholder meetings underscore CEOs and investors increasingly seeing the danger of placing politics above profitability and prosperity.

For frontline practitioners, like our members who work in corporate social responsibility and ESG at major companies, social impact is an increasing priority in the C-suite, and demand for their programs rises each year. The primary driver of the demand continues to be the return-on-investment that mature ESG and CSR practices provide. Large U.S. corporations doing the best job of meeting stakeholder needs had a 4.5% higher profit margin, 2.3% higher return on equity and paid more than five times in dividends.

[More: The Bud Light case for ESG]

But profitability isn’t the only factor driving a commitment to corporate citizenship. Hiring and engaging the best employees provides a significant competitive advantage. In today’s volatile job market, top talent votes on their company’s social and environmental profile with their feet. Employees cite that they are more compelled to consider an employer, accept a job and/or stay with a company when their employer’s actions align with their personal values and provide opportunities to influence companies’ social impact work as part of their jobs. A 2021 IBM survey found seven out of 10 potential employees are both more likely to apply for, and to accept, an offer from an organization they believe to be socially responsible. Further, Porter Novelli found 43% of employees are reconsidering their current job because their company is not doing enough to address social justice issues externally.

Environmental and human rights regulations are increasing in number and scope around the globe. In the U.S., the SEC is closer every day to mandating climate-related disclosures for public companies, because climate risks pose significant financial risks. States like California are enacting legal requirements for diversifying corporate boards racially, ethnically and in terms of sexual and gender identity. Globally, the EU adopted an ambitious, science-based corporate sustainability reporting directive in 2021, with full compliance required this year.

Managing the quagmire of the current political environment is no easy task for corporate executives. However, the benefits of sustained ESG commitments far outweigh any criticism received from a minority of stakeholders.

This year’s proxy season is the latest signal that meaningless attacks on ESG and CSR aren’t influencing corporate America’s resolve to contribute to, rather than detract from proactive investments in meaningful corporate responsibility initiatives.

Carolyn Berkowitz is the president and CEO of the Association of Corporate Citizenship Professionals.