ESG is Dead, Long Live ESG
The Big So What™ Sustainability Webinar Recap
During our record-setting attendance webinar, we discussed ESG backlash, whether or not companies and investors are retrenching, and strategies going forward in ESG is Dead, Long Live ESG. Our Head of ESG, Robert McConnaughey moderated a lively panel with Katherine Collins, Head of Sustainable Investing at Putnam Investments, Richard Brasher, Global VP, Sustainability at LKQ, and Catherine Sheehy, ESG & PBC Transparency Director at United Therapeutics.
In today’s Thought Leadership, we’ll be recapping that conversation with our distinguished panelists and outlining best practices in The Big So What™.
To view the replay and transcription of our discussion, please click here or the banner below. We hope you find our content engaging and appreciate the gift of feedback.
Setting the Stage
Over the past year, we’ve all witnessed the intense backlash in the U.S. against ESG in the popular press in its many shapes and forms. From “anti-woke” activist pressures to concerns over regulatory overreach and “greenwashing”, ESG has become a lightning rod for much of the polarization that pervades today’s political landscape.
Reprioritization of ESG: Acknowledging “The Backlash”
Indeed, the topic of ESG is a timely one, as most companies publish their ESG/Sustainability report during the Q2-Q3 period. Many clients are asking us how they should balance what’s being said in the media with business best practice.
Fortunately, when cutting through the noise and looking at both investor and corporate trends from a data perspective, the answer is clear: a comprehensive and well-executed ESG strategy goes well beyond a controversial acronym and can have far-reaching positive impacts on business fundamentals, investor understanding and sentiment, and ultimately, shareholder value creation.
Corbin’s Proprietary Research
According to results from our 2023 Biennial Global ESG Survey, encompassing perspectives from 155 buy-side professionals representing ~$10.3T in equity assets under management and 103 IR and C-suite executives from around the world, the level of importance placed on ESG as an investment factor and determinant of long-term success have never been higher.
In fact, at the end of 2023, there were 7,485 sustainable funds managing ~$3T in assets globally1, and according to our survey, investors’ belief that ESG is a factor in alpha increased double-digits to 29% from just 8% in 2021.
Continuing, based on the data collected through polling the audience in advance of the webinar, a notable 90% report maintaining core ESG/Sustainability commitments, despite the backlash, and 7% note they have actually increased efforts.
Still, the “ESG” vernacular is experiencing somewhat of a paradigm shift, with 49% indicating they have adjusted the way they message ESG-related topics. Responses indicate a shift towards focusing on the elements that are clearly economically material to business operations and referencing those specifically rather than using the ESG umbrella approach. To that end, many have subbed in “Sustainability” for “ESG”. But before we throw the baby out with the bathwater, it’s important to remember that ESG remains a widely and broadly accepted framework globally. As we think about it, if Sustainability is the train, then ESG is the track.
In fact, data from the S&P 500 supports this finding. ESG mentions among earnings materials and investor presentations ebbed over 2023, while Sustainability mentions held relatively constant.
All these topics and more were discussed in the conversation to follow, which we have summarized below and supplemented with key findings.
Webinar Recap
ESG is Dead, Long Live ESG
As mentioned, our webinar included a lively panelist discussion featuring Katherine Collins, Richard Brasher, and Catherine Sheehy, moderated by Corbin’s in-house ESG expert, Robert McConnaughey.
Panelist Discussion Summary and Key Insights
After a lively discussion filled with insights and audience questions, we identified three key themes:
1.
From an Obscure Term to “Everything Everywhere All at Once,” it is Not Surprising that We Have Entered the Phase of ESG “Refinement”
- For many folks that have been practitioners for a long time on topics surrounding ESG and sustainability, they know that relatively few people — investors, corporates, or otherwise — wanted to engage in these conversations up until a few years ago.
- What followed was an “everything everywhere all at once” phase which ignited abundant levels of investment, product development, new nomenclature, and ultimately new regulatory requirements.
This is the phase where you go home for Thanksgiving and your cousin suddenly has very strong opinions on ESG regulatory processes.”
Katherine Collins, Head of Sustainable Investing at Putnam Investments
- As such, it is only natural that after such an active period, the topic has entered its third phase: refinement.
- Buy-and-large, refinement in ESG has not meant backtracking (as evidenced by our audience polling) but a real focus on the issues that are most strategic for any given setting.
- Approaches in this context are not cookie cutter, and the result is more refined and focused stakeholder conversations.
2.
The Potential Cost of Doing Nothing is Too Big to be Ignored
- From talent attraction and retention to climate insecurity, the costs of doing nothing are increasing.
“What’s the potential value that you could be gaining by embracing sustainability and what are the potential costs if you do nothing?”
Richard Brasher, Global VP, Sustainability at LKQ
- The growing recognition of ESG’s impact across all facets of business means that inaction poses a real threat not only to a company’s immediate operational costs, but also to its long-term sustainability and competitive edge — think energy costs, facility resilience, customer accessibility, etc.
- Investors are beginning to differentiate between those who lead in ESG and those who lag; the belief is that companies focusing on sustainability only when they’re absolutely forced to will find themselves significantly behind.
3.
Business Strategy and Sustainability Needn’t be Separate Conversations; Increasingly, They Aren’t!
- The absence of investor queries on ESG might reflect a need for a company to adopt a more proactive, offensive approach to sustainability.
- It is incumbent upon leaders to embed sustainability into corporate strategy. Successfully integrating sustainability into business operations pivots the discourse towards materiality, ensuring that sustainability is not just an add-on but a fundamental aspect of strategic decision-making.
- Not clearly defining and actively advocating for your sustainability initiatives risks overlooking a crucial chance to highlight its significance, both internally and externally.
“Fundamentally, we’re continuing to do all the things that we’ve been doing because it makes sense for our business, because it makes business sense.”
Catherine Sheehy, ESG & PBC Transparency Director at United Therapeutics
- In evaluating company leadership, investors are increasingly applying sustainability criteria; they are looking for both checking the box (table stakes) and doing something strategically interesting and additive, something that has influence across the company in terms of its results and effectiveness that can be measured quantitatively.
Some communication best practices to consider:
Ask yourself — Is it serious, is it strategic, and is it sincere?:
Critically evaluate your ESG initiatives. Are they conducive of a real, strategic conversation with stakeholders or are they marketing elements? How diligently is the firm working to achieve these goals? How do these goals translate into financially material outcomes? What makes them “sustainable”, anyway? Are they being regularly measured? As the environment matures, these are the types of questions investors are eager for companies to answer clearly and with candor.
- “I extra appreciate the companies who are candid about the challenges. I think it helps investors make better decisions. And just as importantly, it sets a standard for candor amongst their peers and competitors and customers and suppliers.” Katherine Collins, Head of Sustainable Investing at Putnam Investments
Focus communication on continuous improvement and learning, not victory laps:
Emphasize the ongoing efforts your company is taking, with an inclination toward authenticity. If a goal has shown great progress but there is still work to be done, say as much — it will go a long way in garnering the trust of stakeholders. As we always say, investors are looking for progress, not perfection.
If it's not clear to a child, it won't resonate with ESG-unfamiliar or skeptic investors; simplify your sustainability story:
To effectively communicate with a broad audience, including those unfamiliar with or skeptical of ESG, distill your sustainability narrative into clear, compelling framework that conveys the importance and impact to the business. In meetings with investors, provide case studies that demonstrate how actions led to material change and anecdotal learnings. Provide the bottom-line-up-front rather than inundating investors with masses of stats and figures and simplify complex concepts into relatable terms that make the concept approachable rather than polarizing.
If you think you’re not getting ESG questions from investors, think again:
Questions about ESG don’t always include the words “Environment”, “Social”, or “Governance”. The components often exist within a grey area and ESG looks different for each company and industry. For example, the efforts your company is taking to “increase safety” is actually a “Big S” strategy: it speaks to a concerted investment in safeguarding your people and reducing liabilities. You do not need a dedicated “ESG” slide or discussion to talk about such issues that are relevant to and drive business fundamentals.