In the wake of increased scrutiny, ESG leaders aren’t backing down. | Utility Dive

Amid a polarized political landscape, companies are beginning to view sustainability and corporate social responsibility through the same strategic lens.

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Sona Khosla is the chief impact officer for Benevity, a software company that provides a suite of tech solutions geared toward corporate social responsibility initiatives.

The term “ESG” is under fire in America.

More shareholders are challenging their companies’ ESG investments and, amid a polarized political landscape and calls of “woke capitalism,” this opposition is popping up more frequently and across more industries.

While it’s true that corporate ESG and corporate social responsibility (CSR) initiatives have faced heightened scrutiny, the headlines only tell part of the story.

As someone who has spent years helping companies bridge their societal and business impacts, I’m tracking a more nuanced, and frankly, more positive, trend across corporate-level ESG work.

ESG investments are alive and well. In fact, rather than shelving these important initiatives during this period of increased scrutiny, many organizational leaders are growing more ambitious in their approach to ESG work. They’re just being quieter about it.

So, what’s happening behind the scenes?

Many decision-makers are distancing their companies from the term “ESG” — two-thirds of them, in fact, according to a Benevity study from April. However, these same leaders are still continuing to invest in sustainability initiatives.

Despite a vocal minority objecting to these investments, business leaders know there's tangible value in them. Most commonly, organizations are now firmly connecting ESG and CSR work, treating philanthropy just like they would supply chain improvements — as another lever to achieve their company’s preexisting ESG goals.

It’s a logical evolution: There’s a clear link between the environmental and social aspects of this work. While environmental issues affect all of us, they impact marginalized communities at a far more significant rate. These communities may live in areas prone to flooding and air pollution — or lack the proper infrastructure to cope with increasingly destructive climate-related disasters. If a disaster does strike, climate refugees in lower socioeconomic standing will also have a much harder time migrating elsewhere.

This isn’t a far-fetched hypothetical. On our current global trajectory, over one billion people are expected to be displaced from their homes by 2050 due to climate change, according to the Institute for Economics and Peace.

Ultimately, the climate crisis isn’t unfolding in a vacuum. Corporations play an important role in addressing the very real social justice implications, which very often also affects their business.

This re-affirming of the importance of CSR work is occurring even in a polarizing social climate that’s seeing anti-ESG company shareholders and politicians decrying corporate work to advance ESG measures. Conversations with ESG and CSR leaders though, have revealed that they’re still committed to their goals and this hasn’t shaken their resolve. Some may just have to take a slightly different approach to get there.

That approach to sustainability involves viewing ESG and CSR — traditionally seen as two separate tools for related problems — through the same strategic lens.

ESG leaders face increasing pressure from regulatory bodies, shareholders and other stakeholders to accurately report on their environmental and social initiatives and claims. Under these demands, it only makes sense to consider ESG and CSR initiatives together. ESG leaders are tackling this challenge in one of three ways:

Often, people are surprised to learn just how far climate issues extend into other social justice issues. Many ESG leaders consult with their CSR counterparts to learn firsthand how the initiatives their organization already support intersect with climate justice. These insights and partnerships allow ESG and CSR leaders to think more strategically and holistically about their approach.

Greater alignment between ESG and CSR teams also prompts the need for standardized reporting. To convince skeptical shareholders, ESG leaders need concrete metrics that show the value of how ESG and CSR can work together to drive specific outcomes. This will take a commitment from both ESG and CSR teams to break down data and information silos that have been in place for so long.

A company looking to reduce its carbon footprint can try to tackle that problem on its own or leverage the expertise of a nonprofit focused on reforestation work or retro-fitting, for example. Increasingly, ESG leaders are opting for the latter. Grants made to natural resources conservation and protection nonprofits ranked 13th in 2023, compared to 42nd in 2021, according to Benevity’s platform data.

When a company selects the latter option, they’re not only able to reach their climate goals quicker and more effectively, but can also welcome the voice of the nonprofit to help showcase impact. Nonprofits often carry a reputation as inherently credible, ethical and authentic. By elevating the role nonprofits play in helping a company reach its sustainability goals, corporate leaders can sidestep much of the negativity that ESG work has received in recent years — while also helping drive more environmental impact through the nonprofit.

Regardless of what some shareholders may think, much of the workforce cares about climate, according to a recent Deloitte study. It benefits everyone when ESG leaders find ways to engage their employees around the organization’s commitment to environmental improvements, while also providing opportunities for workers to get involved.

Providing volunteer opportunities, such as days dedicated to service, can go a long way: employees who were given one day off per quarter to volunteer were 15 percentage points more likely to say their companies were genuine in their commitment to social responsibility, according to another Deloitte study. In addition to volunteering opportunities, companies should also consider the importance of providing clear and consistent communication on what steps the company is taking in its sustainability efforts.