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To meet the challenges coming in 2023, ESG will need to grow up

by Rob Holzer, Founder and CEO

 

ESG adversaries are already preparing their opposition going into 2023. Here’s how adopters will help ESG stay the course

There was always a danger that organizations might look at ESG strategy as a cure-all – that vague and unmeasured ESG strategies might be used to mask deeper underlying issues at companies. But recent sentiments have gone a step further, trying to position ESG as something fundamentally bad for business.  

We saw a lot in 2022: Cries of “woke capitalism” from businesses and politicians in the United States using ESG to mobilize their base. Claims about ESG’s potential liability to cleantech investors, calling it a “faulty impact methodology”. Fear of the perception of greenwashing leading to green whispering. We have to stop focusing exclusively on these negative aspects of ESG, especially as the movement matures, as we move deeper into 2023.

But from my vantage point, what I’m seeing is the marked transition towards a more conscious capitalism paradigm that has been underway for a while, accelerating in the face of the challenges hitting society – from climate change and health equity to education access and racial justice. 

While a transition of this scale is never a straight line, the momentum continues to build and there are few signs that ESG will let up or retreat. But to overcome the challenges ahead in 2023 and beyond, supporters and adopters of a more just and sustainable world must help ESG meet the moment with a more mature, strategic approach.

ESG must grow up

This year we will see an acceleration of ESG from strategy to action, and the demand for true, tangible impact and measurement will grow. In fact in May 2022, through The World Economic Forum, over 120 global companies co-designed the Stakeholder Capitalism Metrics – a set of data points that allows companies to consistently report non-financial disclosures that can be compared between companies, regardless of their industry or region.  

There is a real movement of companies already maturing their approach and doing the hard work of implementing tangible strategies that will move beyond the current trend of simply stating 2030 or 2050 goals, and get to real standards and metrics that signal progress. That means holding themselves accountable with real data, showing that their actions are having the intended effect, and being transparent where actions are falling short. 

The challenges are quite real for organizations who want to have real metrics behind their ESG ambitions, and risks of over-promising and under-delivering are high. But those challenges will spur innovation and force forward-thinking organizations to look deeply within all aspects of their operations through an ESG lens. Considering the recessionary fears for 2023, ESG can offer a new way for companies to innovate and have a real impact on their bottom lines. 

ESG must keep a human focus

While ESG may be framed as a business imperative, it’s also important that it’s perceived as a human one as well, addressing issues of equity that inspire passion and action. While there might be spikes, history has always favored those efforts that focus on the good of the people, with values trending toward a more equitable balance within our culture and society. The current pushback on “woke capitalism” is just a reactionary moment for ESG that won’t trip up long-term progress.

ESG is an emotional issue for many stakeholder groups from employees through to customers. It is often easy for companies to focus on metrics and data points while missing the human and emotional story – the “why” of what they do. An effective ESG effort involves storytelling that inspires stakeholder groups to perceive organizations positively on both a rational and emotional level. 

ESG must put credibility first

While facing challenges from all sides, ESG proponents can’t make the mistake of sacrificing integrity for speed or temporary reputational wins. That means acting and messaging in credible ways and only working with partners who are equally credible – no bombastic “greenwashing” or “good washing” in the place of measured, vetted, realistic impact. 

I know from personal experience in building my consultancy Matter Unlimited that earning credibility takes a lot of sacrifice and hard work, especially in choosing clients that share your values. In 2023 and beyond, it’s going to be increasingly more important for organizations to have aligned partners because of the huge spotlight on ESG. There will continue to be a stronger demand for alignment from partners and any who are not aligned will be called out for it.

ESG must engage others outside the organization

Historically, folks that work in the sustainability or impact world tend to speak to themselves in echo chambers — not understood by other stakeholders. But to be successful, ESG must prioritize narratives that connect with broader groups of people on an emotional level. It’s critical to connect people to these newer movements in business. That’s why organizations, nonprofits and corporations, must increasingly understand the need for better communication — to dimensionalize ESG and help amplify their programmatic work. 

Despite efforts against it, ESG isn’t going anywhere and to claim a certain value-set that isn’t reflected in your actual business practices across environmental, social and governance is a risky disconnect in today’s world. Studies show that values-driven companies are outperforming and stakeholders are increasingly aware of “good” and “greenwashing”.

But embracing an effective ESG strategy isn’t about perfection. There can be compelling narratives built around the journey towards your goals and the challenges an organization faces in getting there, so long as it’s backed up with the action, data, integrity and accountability to survive cynical attacks from those trying to slow inevitable progress.

Matter Unlimited
Matter Unlimited