The Problems with ESG Programs: 5 Myths to Bust to Get C-Suite Buy-in
ESG programs have become a hot topic in the legal industry, especially in the last five years as they have quickly catapulted to a position of importance for companies. One of the most common hurdles for GCs and their teams is getting the necessary buy-in from organizational leaders. Highlighting the positives and dispelling the myths can help in-house legal professionals obtain C-suite buy-in for company ESG programs.
Key Points:
- GCs should review their corporate purpose and values, refine mission statements, involve the C-suite early on, and prepare their AGCs, DGCs, and other team members to assist.
- The top priorities for most C-suite stakeholders are increasing revenue, mitigating risk, access to capital, attracting and retaining talent, and tracking program effectiveness.
- In-house counsel can bolster C-suite support for ESG programs by openly discussing objections and dispelling myths, such as public backlash, being pigeonholed into holding one set of beliefs, and undercutting financial performance.
Everyone knows environmental, social, and governance (ESG) programs have become a strategic necessity for companies worldwide. Investors, consumers, and prospective employees all increasingly consider and evaluate ESG programs when making decisions. Regulators, too, have increased their focus on ESG-related issues through both mandatory rules and permissive guidance.
However, as the importance of ESG programs increases, departmental responsibility for them has evolved. Today, program creation and development has transitioned from solely under the purview of HR departments to a highly involved in-house counsel’s responsibility, making it a significant concern for many GCs and their teams.
While it’s obvious that effective ESG programs provide companies with advantages in recruiting investors and talent while ensuring compliance with the growing body of ESG-related regulations, implementation of such programs is no easy feat. Obstacles in-house legal teams face when implementing ESG programs include:
- Defining the measurement framework
- Collecting and analyzing data against metrics
- Disconnect in team and company priorities
- Understanding the various regulatory considerations
- Maintaining accountability
- Preparing for and responding to public backlash
The No. 1 challenge, however, is less technical: obtaining unified stakeholder buy-in. The C-suite, in particular, can be difficult to persuade.
Where to Start
Axiom's annual GC survey highlighted that despite a recessionary turn, general counsel continued to view themselves as the conscience of their companies and their teams as the organizational compass for ethical decisions. Specifically, 87% of GCs surveyed reported that they viewed themselves as "the conscience of the company." Thus, GCs are naturally well-positioned to help develop their organizations’ ESG programs.
As a starting point towards obtaining buy-in, GCs should review their corporate purpose and values, refine mission statements, involve the C-suite early on, and prepare their AGCs, DGCs, and other team members to assist. In-house counsel may also consider ALSPs or other flexible legal talent to support them in carrying out their increased workload.
Aligning Corporate Purpose and Values
Every GC knows that corporate purpose and company values are the drivers of organizational decisions, but when developing programs and obtaining buy-in, legal leaders should lean heavily on these two guideposts. Purpose and value should guide decision-making and be used to demonstrate to C-suite executives how ESG priorities align with corporate governance priorities. These two corporate pillars also align strategy before responding to public reactions.
Reinforcing Mission Statements
As Axiom has explored in prior posts related to ESG-related issues, developing legal department mission statements should be a priority for GCs to maintain talent, risk mitigation, and consumer relations. Departmental mission statements are mechanisms for bringing key priorities front of mind for team members, and they also help reinforce company purpose and values, allowing the team to align its actions with them.
Many in-house departments are moving in this direction. The 2023 GC survey indicated that mission statements are increasingly focusing less on basic legal compliance and more on addressing things like social, environmental, and human rights concerns, as well as collaboration with company leadership.
Evolving ESG Programs
Much to any in-house team’s dismay, ESG program implementation is not a one-and-done proposition. Instead, the management of an ESG program is ongoing. ESG programs must evolve with changes in a company's priorities, shifting societal norms, and evolving regulatory environments. Managing team and C-suite executives' expectations accordingly is key to ensuring the success of the program. GCs themselves can be a model for this adaptability by also being prepared for continuous evolution.
Engaging C-Suite Executives in the Process
While the old saying “too many cooks in the kitchen” may make many in-house legal teams worried about involving the C-Suite in the development process and subsequent assessments of the program, engaging C-suite executives can actually go a long way in obtaining their buy-in and developing a more well-rounded program. Like most projects, people tend to be more invested in initiatives they have some say in developing. When GCs engage C-suite executives early on in the process, they create strong allies to see how ESG initiatives align with their priorities.
Pros to Share with Your Stakeholders
As with all consensus building, considering the other parties' goals and objectives is essential. The top priorities for most C-suite stakeholders are increasing revenue, mitigating risk, access to capital, attracting and retaining talent, and tracking program effectiveness. Well-managed ESG programs can advance each of these goals. But how does a GC get C-Suite leaders to recognize it as well?
When building your case for ESG, pointing out the following advantages can be useful in demonstrating how ESG aligns and furthers C-suite priorities:
Talent Recruiting and Retention
ESG programs provide access to top talent and are likely to continue to increase in importance to prospective employees.
Millennials and Gen Z make up the majority of the workforce and surveys continue to show these generations prioritize working for companies that align with their values, which often include social change and environmentalism. A survey by Deloitte of over 14,000 millennials and Gen Zs reported that 34% and 39%, respectively, have rejected offers from employers that did not align with their values. A robust ESG program can help organizations develop a competitive edge in recruiting and retaining top talent.
Customer Recruiting and Retention
Similar to employee recruitment, an effective ESG program provides an opportunity to enlarge a company's customer base and increase customer loyalty. Today, consumers are looking for more than just goods and services that fit their needs. They want to buy from socially responsible companies that have frameworks in place to positively impact society and the environment. For example, Forbes shared a survey that revealed 88% of Americans reported they would be more loyal to a company with corporate strategies that support social or environmental issues.
Risk Mitigation
A boon to share with C-Suite leaders is that ESG programs allow companies to keep tabs on the social pulse and to take proactive rather than reactive action. Companies with strong ESG programs stay in tune with public sentiment and organizational ESG trends and make adjustments as needed. They also have processes to stay up-to-date with ESG-related best practices and guidelines.
This unified approach greatly reduces the risk that many public reaction threats come to fruition and ensures a consistent approach if they do. This prevents the all-too-common scenario where a company issues a rushed statement in reaction to global events only to have to adjust or backtrack a few days later.
Materiality Assessment
A materiality assessment is a key mechanism for developing a strong ESG program and of major importance for many stakeholders as it identifies the company's key ESG initiatives. When developing the assessment, it’s important to take into account the significance of certain initiatives to internal stakeholders, external stakeholders, and business performance.
Each initiative that the company decides to move forward on should be supported by a strong measurement framework that allows C-suite executives, board members, and others in the organization to track progress and ensure it remains aligned with the business strategy.
5 ESG Myths to Bust with Your Stakeholders
One of the reasons C-suite executives are reluctant to fully embrace ESG programs is the misunderstanding surrounding them. Stakeholders, including C-suite executives, are often concerned about public backlash, being pigeonholed into holding one set of beliefs, and undercutting financial performance. By openly discussing objections and dispelling myths, in-house counsel can bolster C-suite support for ESG programs.
Myth 1: Only Activist Companies Should or Can Take a Stance
There is a common misconception that only companies that are focused on environmental or social change can take a stance on current issues. Many C-Suite leaders fear that taking a stance may subject the company to public backlash for jumping on the bandwagon, delving into subjects outside the company’s scope of business, or that are different from its employees’ and customers’ opinions.
To prevent taking positions that push away important external stakeholders, GCs should remind their stakeholders that authenticity is the antidote. A company needs to align its stance with its authentic voice and mission. When actions arise from a company’s values, ESG programs are resilient. Some internal skepticism and public scrutiny are unavoidable, but when decisions are rooted in the company’s core purpose and values, both internal and external stakeholders tend to maintain respect and loyalty to the company.
As any experienced GC will know, not everyone is going to agree with every position - and that is okay - but authenticity is what prevents disagreement from undercutting company loyalty.
Myth 2: ESG Positions Are Always Controversial
A common misconception is that ESG positions are always controversial. This myth is reinforced by the media headlines that inevitably take center stage whenever a company’s ESG position backfires. GCs should encourage their stakeholders to look at the reality: most ESG positions are widely accepted with zero controversy. Fostering fair and inclusive workplaces, increasing environmental sustainability, and corporate transparency are all largely accepted as positive business initiatives.
Myth 3: ESG Programs Are Solely a Cost Center
C-suite executives may view ESG programs as a cost center and may be reluctant to increase legal spending to develop these programs. ESG programs indeed take financial and personnel resources to successfully develop and maintain, but viewing them solely as a cost burned overlooks the financial benefits of ESG.
Business-minded GCs will better position ESG programs as strategic investments. Corporations with strong ESG programs benefit financially from improved brand reputation, more employee and customer loyalty, and increased operational effectiveness. They also decrease the risk of public relations mistakes and compliance oversights that are extremely costly and common among organizations that lack a robust ESG program.
Myth 4: Companies Must Take a Stance on Every Issue
Another concern revolves around the misconception that a company must have a stance on every ESG issue. Well, it’s time to spread the good news because, in fact, it does not! Having a stance on every issue is impossible and not recommended. Instead, companies should develop ESG programs and positions that arise naturally from their corporate values to minimize risk. Additionally, effective ESG positions must be sustainable and measurable. If a stance cannot be both, it likely is not a proper priority for the organization, and a smart GC will guide stakeholders into understanding and aligning with that core belief.
GCs should remind their stakeholders that taking a measured approach to ESG avoids spreading resources too thin and diluting their impact. It also reduces the risk that a company will impulsively take positions that undercut its reputation with the public.
Myth 5: All ESG Goals Must Be Public
Contrary to popular belief, companies do not need to disclose all their ESG goals to the public immediately. In fact, it is prudent to wait to disclose ESG initiatives that are still in development or improvement phases until they are more fully developed and vetted. While sustainability reporting is important, premature disclosure creates a higher risk of public backlash or criticism to the company's detriment.
Additionally, while improving public image is one of the purposes of ESG programs for many corporations, it is important to remember that it is not the only purpose. It all stems back to authenticity. Most consumers/clients will be able to sniff out when a program is just to save a company’s face, and in order to prevent risks from occurring, a savvy GC will mitigate those risks with firm release procedures in place.
Conclusion
In-house teams are increasingly tasked with developing and implementing ESG programs but often face push-back or apathy from C-suite executives. GCs can increase C-suite buy-in by educating their executives on ESG’s ongoing iterative process, highlighting the positives of ESG in light of C-suite goals, and dispelling common myths about ESG.
Developing and refining ESG programs is a large undertaking that can be overwhelming for legal teams with large workloads. Fortunately, in-house teams don't have to go it alone. Axiom's bench of top legal talent has experience in ESG regulation and implementation that can assist teams at any stage of their process. Using flexible legal talent is an effective way for organizations to use their legal budget.
