Why Companies Need to Act on ESG Issues with Authenticity 

In an era marked by the convergence of business and activism, many believe that “silence speaks louder than words.” While silence on environmental, social and governance issues may draw the attention of stakeholders looking for statements, empty words and promises may pose greater risks.  

The pandemic, wildfires, controversial Supreme Court rulings, water shortages, mass shootings and global conflict have shone a bright light on the role of business in society, underscoring the need to integrate ESG into business strategy as stakeholders gravitate towards companies that align with their values.  

As a result, business leaders are dedicating more time to responding to these environmental and social issues – both internally and externally. In fact, 66% of American consumers say their social values shape their shopping choices and 86% of employees prefer to work or support companies that care about the same issues they do. 

See Something, Say Something or Say Nothing? 

Taking a stand (or not taking a stand) will invite attention — both negative and positive. In this piece, we will share our framework on when and how businesses should act on ESG issues with authenticity to avoid risks of being perceived as opportunistic or greenwashing.  

Purpose-led companies with ironclad ESG response strategies have the necessary foundation for success. Those that are investing in environmental issues or social issues as part of their core strategy will have more credibility in proactively engaging in topics in addition to responding to events. For example, Patagonia’s self-imposed Earth tax gives credibility to its proactive and reactive environmental activism, and Ben & Jerry’s ongoing commitment to racial justice supports public stances on social movements. While there is no perfect strategy that will please all stakeholders, keep these principles in mind when thinking about how to engage on issues. 

We understand this is difficult work because we are still figuring it out ourselves. Developing these guidelines has encouraged us to shine a brighter light on our own ESG response strategy. While we are far from perfect and still have a long way to go in our own ESG journey, we have identified five essentials for how to respond and engage authentically.  

1. Know Your Company’s Purpose and Build the ESG Response Strategy 

The foundation of a successful ESG response strategy is dependent on an unwavering brand purpose. Purpose acts as a North Star, guiding a business as it makes difficult decisions. If issue engagement is treated as a temporary initiative rolled out for the sake of promoting goodwill, stakeholders will perceive a company as opportunistic. 

Brand purpose does not have to be one and the same with ESG strategy. However, connecting your ESG response strategy to your purpose and values demonstrates genuine commitment and gives the company credibility to play in the ESG arena.    

For example, Patagonia is a “purpose native” company that has an ESG strategy entwined with its purpose. As a company that sells apparel for exploring the outdoors, it has spearheaded several initiatives to protect and preserve the environment.  

2. Identify Issues Your Stakeholders Care About and That You Can Authentically Engage on 

“The goal is to reinforce existing brand identities on issues that matter to customers and employees. If they’re authentic in what they stand for and they reinforce it consistently, then it’s credible.”

Marisa Mulvihill, partner at Prophet, in the ‘Wall Street Journal’ 

With a new set of issues dominating the news cycle every week, businesses may feel pressure to react to every topic, which could potentially result in missteps if there isn’t a concrete ESG response plan in place. By demonstrating authentic action through a robust ESG response strategy, businesses can build their credibility to make their voices heard on a multitude of issues. 

Conducting a materiality assessment will determine what issues are the most important to your stakeholders, ensuring that your company can focus efforts on the most relevant and authentic ESG issues. To stay attuned to evolving customer behaviors, consistently undertaking market research on customer attitudes can propel companies forward by allowing them to proactively strategize where they can meet the needs of their customers. 

Nike has already successfully leaned into contentious conversations. With its bold advertisement featuring Colin Kaepernick, the company fueled the fire of a subset of customers uncomfortable with the company’s embrace of the athlete. However, its younger, diverse consumers immediately rallied behind the cause, showing that the company had done its research on its core customer group by making a strategic, calculated move to solidify its relationship with them. 

In 2020, Prophet was overwhelmed, in the best way possible, with the discussions within the firm to do more and better in the face of systemic racism, particularly as it impacts the Black community in the U.S. As part of our commitments to promote racial and social equity both within our firm and broader communities, we pledged $4M of pro-bono hours to organizations supporting racial justice. As we continue to work towards achieving this commitment, Prophet’s pro-bono program enables teams to connect their passions and share their expertise to support organizations and movements on the ground. We know that racial justice and equity will never be achieved by one leader or one group alone, but we are using our core competencies and influence to do our part in advancing the cause. 

3. Execute With Commitment to Action and Transparency 

Authenticity is key. How your company executes can make or break a response, even if the issue it is addressing is material to stakeholders. While purpose provides the foundation, concrete action on a promise is crucial for an ESG response strategy that leaves an impact.  

Before taking a stand, ask yourself: Is your company contributing value by engaging? Are you shining a light on the core issue and supporting a solution, or are you detracting from the issue or potentially causing harm? 

There are times in which showing up might be perceived as performative, especially if a company’s past actions paint a conflicting picture, or if the response is perceived as reactionary and disingenuous. Purpose washing — touting shallow commitments for marketing purposes without driving tangible change — is a real risk that can discredit a company’s ESG response strategy. While 73% of consumers say companies must act now for the good of society and the planet, 71% don’t believe companies will deliver on their promises. 

For example, financial services firm State Street was behind the infamous “Fearless Girl” statue on Wall Street, highlighting the need to combat gender inequality. However, further digging unveiled that the company’s gender diversity fund did not always vote in favor of gender diversity or pay equity proposals for the companies it invests in. 

Engaging in issues will pose a risk if there is a gap between what a company says and what it does. However, if a company is ready to show up on issues it hasn’t performed well on, it will need to do so with transparency and commitment to action. 

4. Thoughtfully Balance the Needs of Multiple Stakeholders 

The actions of a company ripple across the full system of stakeholders. When developing a response strategy, it’s crucial to understand the diverse needs of customers, employees, local communities, suppliers and more. If companies decide to act, they will need to evaluate whether to act internally to address the topic with their employees, or also externally to engage with customers and the community.   

Thorny issues often pull in multiple stakeholders at once, with each group having different levels of impact and involvement. When companies were deciding on how their responses to the invasion of Ukraine might impact customers in Russia and across the world, they also needed to consider how to support their employees, especially those who had to leave Ukraine and care for their families. Suspending business in Russia may put pressure on the country, but it also affects civilians trapped in the conflict. 

5. Continually Monitor and Evolve 

Taking a stand doesn’t stop after making an announcement. Action must be continually monitored to understand the impact of your ESG response strategy on stakeholders. Metrics can help you understand how to improve and iterate on your strategy: Did your company’s response support the issue in a way that resonated with the stakeholders who were the most impacted in the issue? How did stakeholders view your company’s response to the issue? Did the response address your stakeholders’ needs? 

Additionally, a company’s response strategy shouldn’t be set in stone. With a relentless influx of issues pulling companies in, the strategy should be dynamic and leverage the expertise of multiple departments within a company to adapt to whatever new challenges arise. In a multi-stakeholder environment, determine who within your company should own the response strategy, whether that be HR, consumer marketing, internal communications or another expertise group. 

Lastly, continue to revisit the approach and assess where you can evolve to meet the changing needs of stakeholders.