The Latest Dirty Word in Corporate America: ESG
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The Latest Dirty Word in Corporate America: ESG

Executives switch to alternatives like ‘responsible business’ to describe corporate initiatives

By CHIP CUTTER
Thu, Jan 11, 2024 10:08amGrey Clock 4 min

Many companies no longer utter these three letters: E-S-G.

Following years of simmering investor backlash, political pressure and legal threats over environmental, social and governance efforts, a number of business leaders are now making a conscious effort to avoid the once widely used acronym for such initiatives.

On earnings calls, many chief executives now employ new approaches. Some companies, including Coca-Cola, are rebranding corporate reports and committees, stripping ESG from titles. Advisers are coaching executives on alternative ways to describe their efforts, proposing new terms like “responsible business.” On Wall Street, meanwhile, some firms are closing once-popular ESG funds as interest fades.

The shift in messaging reflects a reality: “ESG is complicated,” said Daryl Brewster, a former Kraft Foods and Nabisco executive who now heads Chief Executives for Corporate Purpose, a nonprofit of more than 200 companies focused on social impact.

The movement to bake accountability into business decisions stretches back centuries; the term ESG gained momentum after the United Nations used it about 20 years ago. Over time, the effort became divisive—derided by some state officials as “woke capitalism,” and criticised by others for putting too much focus on measurement and disclosure requirements.

Many CEOs stress that they continue to follow sustainability commitments made years ago—even if they are no longer talking about them as often publicly. A December survey by the advisory firm Teneo found that about 8% of CEOs are ramping down their ESG programs; the rest are staying the course but often making changes to how they handle them.

Many leaders are more closely examining disclosures, wanting to avoid regulatory scrutiny or political criticism. In lieu of lofty pronouncements, advisers are telling CEOs to be more precise and to set goals that can be achieved. Saying as little as possible is recommended.

“We’ve seen a great deal of reframing and adjusting by CEOs in the ESG arena. Not only of what they say, but also where they say it and how they characterise it,” said Brad Karp, chair of law firm Paul Weiss who advises a number of CEOs. “Most companies are moving forward operationally with their ESG programs, but not publicly touting them, or describing them in different ways.”

When Thomas Buberl, CEO of Paris-based insurer AXA, met in the U.S. last year with the leaders of an asset manager, a fertiliser maker and a tech company, executives suggested that he reflect the newfound caution. “I used the abbreviation ESG, and people taught me not to use that word,” Buberl said. “I said, ‘What do you want me to call it?’”

Few people had a ready answer. Buberl said the importance of environmental efforts and other goals shouldn’t be underplayed. “We need to move from intentions to actions,” he said.

ESG became even more politicised following a spat in 2022 between Disney and Florida Gov. Ron DeSantis. That opened the door to sharp commentary on ESG efforts broadly by more than a dozen other state officials and a pullback by some asset managers. Investors yanked more than $14 billion from ESG funds in the first nine months of 2023, according to Morningstar.

BlackRock’s Larry Fink wrote a letter to investors in 2023 that didn’t explicitly reference ESG, after some states pulled money in 2022 over the firm’s ESG emphasis. State Street in November announced a new voting policy for investors who may not want to emphasise ESG as heavily. Fidelity last year removed language considering potential ESG impacts from its proxy-review process.

On earnings calls, mentions of ESG rose steadily until 2021 and have declined since, according to a FactSet analysis. In the fourth quarter of 2021, 155 companies in the S&P 500 mentioned ESG initiatives; by the second quarter of 2023, that had fallen to 61 mentions.

Adding to the challenges for companies is that some dimensions of ESG, particularly the social goals, can be difficult to quantify. Corporate diversity programs, often part of an ESG agenda, face new scrutiny following a Supreme Court decision on affirmative action and legal challenges from largely conservative groups.

Executives and their advisers say companies remain more committed to the “E” in ESG, wanting to respond to climate change. Some CEOs say that environmental factors are crucial to their business, one reason many went to Dubai for COP28, the U.N.’s climate conference. Climate change is also likely to be a key theme at the World Economic Forum in Davos, Switzerland, next week.

Revathi Advaithi, CEO of Flex, said the manufacturer has 130 factories across the world and there isn’t a question of whether they need to operate in a sustainable way.

“It’s not as though I got a whole bunch of new investors because we had a sustainability report or we were ESG-focused,” she said. “We didn’t do it for that purpose…. We wanted to focus on water reduction, power reduction, all those things. So I don’t view it as, hey, it’s a trend that came today and it’s gonna go off tomorrow.”

Some of the changes leaders are making are subtle. At Coca-Cola, the company published a “Business & ESG” report in 2022; in 2023, it was released as the “Business and Sustainability” report. The beverage giant also renamed committees on its board of directors.

The fiercest critics of ESG say they welcome less discussion of it. “If this trend is decreasing, these CEOs must have realised that this puts them at greater legal risk and costs them customers,” said Texas Attorney General Ken Paxton, who has pushed back against ESG policies, in a statement.

What to call such efforts now remains a debate. Brewster’s nonprofit CEO group advises leaders to discuss initiatives in clear language, explaining efforts to cut water use, for example, or to use terms such as “our people” or “our natural resources.” Brewster said he wants more leaders to adopt the phrase “responsible business.”

“You can be anti-ESG,” Brewster said. “It’s hard to be anti-responsibility.”



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Call to cut corporate carbon footprints is loudest from inside organizations, outweighing demand from customers and regulators, survey finds

By YUSUF KHAN
Sun, Mar 3, 2024 2 min

The pressure on companies to cut their carbon footprint is coming more from within the organisations themselves than from customers and regulators, according to a new report.

Three-quarters of business leaders from across the Group of 20 nations said the push to invest in renewable energy is being driven mainly by their own corporate boards, with 77% of U.S. business leaders saying the pressure was extreme or significant, according to a new survey conducted by law firm Ashurst.

The corporate call to decarbonise is intensifying, Ashurst said, with 30% of business leaders saying the pressure from their own boards was extreme, up from 25% in 2022.

“We’re seeing that the energy transition is an area that is firmly embedded in the thinking of investors, corporates, governments and others, so there is a real emphasis on setting and acting on these plans now,” said Michael Burns, global co-head of energy at Ashurst. “That said, the pace of transition and the stage of the journey very much depends from business to business.”

The shift in sentiment comes as companies ramp up investment in renewable spending to meet their net-zero goals. Ashurst found that 71% of the more than 2,000 respondents to its survey had committed to a net-zero target, while 26% of respondents said their targets were under development.

Ashurst also found that solar was the most popular method to decarbonise, with 72% of respondents currently investing in or committed to investing in the clean energy technology. The law firm also found that companies tended to be the most active when it comes to renewable investments, with 52% of the respondents falling into this category. The average turnover of those companies was $15.1 billion.

Meanwhile, 81% of energy-sector respondents to the survey said they see investment in renewables as essential to the organisation’s strategic growth.

Burns said the 2030 timeline to reach net zero was very important to the companies it surveyed. “We are increasingly seeing corporate and other stakeholders actively setting and embracing trajectories to achieve net zero. However, greater clarity and transparency on the standards for measuring and managing these net-zero commitments is needed to ensure consistency in approach and, importantly, outcome,” he said.

Legal battles over climate change and renewable investing are also likely to rise, with 68% of respondents saying they expect to see an increase in legal disputes over the next five years, while only 16% anticipate a decrease, the report said.

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