ESG policies—why brands should think twice about abandoning these principles

More businesses are becoming conspicuously quiet about their commitment to environmental, social and governance (ESG) principles. They’re also scaling back diversity, equity and inclusion (DEI) efforts as well as corporate social responsibility initiatives—both of which overlap with ESG. What’s behind the shift? The answer is complex. However, as companies consider pulling back on publicly discussing ESG, they should recognize its importance—especially to two key stakeholder groups: employees and customers. In recent years, organizations have highlighted their sustainability and governance initiatives, even though ESG principles have been around for decades. The term ESG itself gained prominence in 2004 when the United Nations Global Compact, in partnership with the International Finance Corporation and the Swiss government, said integrating these factors into investment strategies would yield better results for companies and investors. Check out the latest Ad Age events and award programs Since then, businesses have viewed ESG primarily in the context of investor relations, often using it to demonstrate reduced financial risk. However, more recently, some companies are questioning whether promoting these initiatives is worth the trouble. The polarization around ESG, particularly in the United States, is driving this hesitation. Some see it as a way to push progressive social and environmental agendas, sparking opposition from political groups who view it as an imposition of values. Detractors argue that ESG can represent “woke capitalism,” where companies prioritize social concerns above shareholder returns. Also read: Why brands are pulling out of the Human Rights Campaign Corporate Equality Index The debate over whether ESG initiatives enhance or detract from financial performance continues. Supporters say they create long-term benefits, reduce risks and enhance a company’s reputation. Critics say they divert attention from maximizing profits. In 2023, for example, major ESG-focused funds underperformed the S&P 500, before rebounding in 2024. These pressures have left companies reassessing how they approach their sustainability and governance strategies. In late 2021, 155 companies in the S&P 500 referenced ESG in their earnings calls. By mid-2023, that number had dropped to 61. Even BlackRock CEO Larry Fink,once one of the most vocal proponents of ESG investing, has distanced himself from the term, citing its “weaponization” by political factions. Unilever, similarly, has scaled back efforts, while others have withdrawn from DEI initiatives, undermining the social dimension of ESG. ESG still matters. Companies that downplay their sustainability or governance efforts risk alienating critical stakeholders. While appeasing short-term investor concerns or political criticism, they may jeopardize relationships with their workforce and consumers. Research shows that employees feel more engaged and fulfilled when they believe their work contributes to a positive impact on the world. Initiatives related to environmental and social responsibility often help foster a sense of pride and purpose among workers, leading to greater loyalty and commitment. Backtracking on these commitments can harm a company’s employer brand. A workforce that sees its organization retreat from its sustainability goals may question its integrity. Furthermore, younger talent, in particular, tends to prioritize working for companies that align with their values, especially those with strong ESG performance. Consumers are just as attentive. A McKinsey survey found that more than 60% of U.S. shoppers are willing to pay a premium for sustainable packaging. Similarly, a NielsenIQ study reported that nearly 80% of Americans view living sustainably as a personal priority. Consumers with higher education and income levels, in particular, are more likely to value a company’s environmental and social actions and reward those commitments with their loyalty. A-List & Creativity Awards Enter for a chance to be recognized as the best in advertising Submit your entry here ESG will likely remain a contentious issue in the U.S., particularly during an election year. To navigate these challenges, businesses should: Expand the focus beyond investors Investors are crucial, but they aren’t the only stakeholders. Employees, consumers and supply chain partners are paying attention, too. Back words with actions Communicate sustainability and governance efforts, but ensure actions reflect the messaging. Authenticity builds and maintains trust. Connect ESG to business outcomes Show the tangible benefits of ESG investments, such as improved employee retention, customer loyalty or profitability. Make it personal People connect with stories, not just data. Use executives and employees to share the real-world impact of sustainability efforts in a way that resonates emotionally. Most of all, brands should stay true to their values. If ESG is central to their corporate identity, they should stay the course. Companies that live their values authentically will emerge stronger in the long run. NextGen Marketing Summit Join us for a crash course on Gen Z, DTC marketing and the creator economy Register today

ESG policies—why brands should think twice about abandoning these principles

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