Doing well by doing good: resilience, risk and the reputation value of ESG

Today, you’d struggle to find a business leader who’d endorse Milton Friedman’s famous assertion in 1970 that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits".

Just a year after Friedman’s seminal essay, McKinsey & Co. countered that it was possible to “do worthwhile things for society as well as to earn substantial financial rewards”. Over the next 50 years, business leaders have been grappling with this issue – how to do well, while doing good.

But one hard fact hasn’t changed: few businesses can afford to base their investment decisions on altruism alone. ESG, like most corporate initiatives, has to earn its keep. Indeed, this is crucial to ESG’s longevity, because when times get tough and resources become scarcer, history suggests that Friedman’s doctrine starts to look more seductive.

Thankfully, Council members say that ESG initiatives create tangible value in many ways.

Risk, return, reputation 

To begin with, much of the ROI from improved ESG performance is about reducing risk – because risk is expensive. Council members describe ESG as a risk management tool, which builds greater long-term corporate resilience. A good example of this is de-risking supply chains, by slashing complexity or cutting dependency on natural resources and, ultimately, reducing costs: 

We’ve certainly found a lot of energy deals have been parity or have been lower cost. They have certainly been important in terms of value creation, in terms of traction

Risk can also be mitigated by acting ahead of regulation.

As well as reducing risk, ESG creates opportunity. In particular, it helps to drive innovation. Its ‘sustainability lens’ forces businesses to think critically about the long-term value they create, and to identify new trends, business opportunities and partnerships. 

More broadly, ESG is an increasingly powerful tool to strengthen corporate reputations. As one member of the Ipsos Reputation Council said earlier this year: “I do think ESG is 90% of our corporate reputation, probably. I do think it has a really big influence".

The role of ESG in building trust

To see how this works, let’s think about trust. Trust is the key that unlocks the value of your corporate reputation. Ipsos research shows that higher levels of trust in a business lead to more resilience during times of crisis, and greater communications efficiency (people who really trust a company are more likely to choose its products and services, and to find its communications believable). 

But – critically – the same research shows that trust is about more than just competence. Yes, we need to trust airlines to get us to our destinations in one piece, and banks to keep our money safe. Competence and reliability are still table stakes. But, increasingly, we also care that the airline or the bank acts responsibly, has good intentions, and – most importantly – shares our fundamental values. 

And we expect business leaders to stand up for these values: 50% of the global public say that business leaders have a responsibility to speak out on the social and political issues that matter to them.

That’s where ESG comes in. Strong ESG performance helps build these higher dimensions of trust, by showing that a business shares our values and takes decisions based on more than just profit. As well as creating resilience, this can open ears, minds, doors and even wallets across the whole range of stakeholders.

There are clear business opportunities linked to sustainability in the way that you talk with customers and clients mirroring what they’re doing…so people want to work with other companies that similarly operate in a sustainable way. I think also the realisation that there is a big business opportunity in products and services that deliver social, environmental value

This matters: in a world where just 3 in 10 of the global public trust business leaders to tell the truth, any trust dividend will be a potent competitive differentiator for a company.

ESG: a weapon in the war for talent? 

Council members also view ESG as a vital asset for the employer brand. 3 in 4 say that ESG performance has a demonstrable link with attractiveness as an employer.

Why is this? Once again, we’re back to the power of shared values, and the trust that these can engender:

I’ve been to campus recruiting trips, when they target bringing in a new crop of engineers from Georgia Tech or from MIT, and they have a tonne of questions about this stuff and they really want to position themselves in an organisation where they have shared values.

This is interesting, because recent research by Ipsos suggests that employees, like consumers, are looking for ESG performance to be delivered as a co-benefit rather than ‘the benefit’. All things being equal, many employees will choose to work for an employer that promotes sustainable values, but on the proviso that their hygiene factors (remuneration, career development) are met. 

The same is true of consumers. To drive a change in customer behaviour, ESG performance must be a ‘co-benefit’ alongside other factors which are key in the category, such as being easier, cheaper, or healthier. Sustainability can work as a ‘tie-breaker’ between two otherwise comparable products, services, or potential employers.

Once again, companies which deliver on both the table stakes of trust (reliability and competence) AND higher level, shared values, will see the greatest return on their ESG investment. 

This helps to explain why CSOs are working closely alongside other functions, such as marketing and HR. In each case, 2 in 3 Council members say they’re collaborating with these colleagues a great deal or a fair amount.

Strategic ESG communications: avoiding the pitfalls 

Corporate reputation is a flower that doesn’t grow well in the shade. Strong ESG performance will be of little value, reputationally, if stakeholders don’t get to hear about it. And yet Council members are very mindful that the public, especially, are increasingly sceptical about what they see as corporate ‘smoke and mirrors’: 

There’s talk these days of ‘green-hushing’ where people are actually doing things but don’t want to talk about them because they’ll be accused of green-washing

The Ipsos Trustworthiness Monitor 2022 found that 52% of the global public believes too many businesses use the language of change – to help the environment or to promote greater equality – without committing to real change.

In turn, this has prompted greater scrutiny from regulators such as the UK’s Advertising Standards Authority over companies’ climate claims, particularly around carbon offsetting. The EU environment commissioner, Virginijus Sinkevičius, has said he intends to crack down on climaterelated claims that are unclear, ambiguous or short on information. As the Financial Times put it before COP26, “stunts and pious pledges won’t save the planet”.

ESG initiatives tackle complex problems in which progress is iterative and often incremental. If some ESG headlines sound too good to be true, it’s because they are. Rather, it’s about doing the hard yards, with trade-offs, and that doesn’t make for glamorous headlines:

ESG is lots of little tiny, hard, boring things you have to do to reach the end goal … it is not sexy. Some of the social impacts can be sexy, right, but the E stuff is bloody hard work and the G stuff is like hard and tricky and weird.

Communicators who’ve had to explain corporate positions on issues such as corporation tax, pharmaceutical pricing or energy investment will be familiar with this challenge. Council members are confident that they can engage with informed stakeholders; more than 3 in 5 disagree with the proposition that it’s difficult to tell stories about sustainability that resonate with stakeholders. 

But public-facing comms are far trickier. Understanding is often low. Cut-through and credibility are hard to achieve. There may be first-mover disadvantage to communicating around some issues, while actions that we see as positive can quickly be turned around and made negative.

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Top 10 tips for ESG communications

10. Engage, inform, educate 

“There’s definitely a responsibility on big brands to engage and educate and communicate on these topics.” 

Well thought-through, non-preachy, jargon-free comms which speak to essential human needs and values will find an audience. If the story is especially complex or risky, collaborate as an industry or sector.

9. Stakeholder expectations 

Hypocrisy destroys trust, fast.
“I know it’s not a great message to say ‘look at our amazing environmental performance, but on the flipside of that we have a really poor human rights performance’.”

8. Marshal your proof-points 

“I think the biggest challenge is having strong systems in place that measure metrics and KPIs accurately and communicate those accurately.” 
Third party validation is important.

7. The data or the story? Both is better

“Figuring out the balance between the storytelling component which is the more compelling but with the data component which shows that you’re not greenwashing, that you’re not fluff.”

6. Zoom out 

“Talk to them about the general direction of travel, give them confidence that we are moving in the right direction but then help to explain to them how they can get involved and contribute.”

5. Use ESG to inspire your own people 

“I think we’ve actually got lots of good proof points in our organisation and storytelling that we can do and I think it does play an important role in inspiring our people”

4. Tailor the comms to the audience 

“Investors want data but other stakeholders want other pieces of information and when you’re a resource-lean organisation, like we are, that’s not so easy to do.”

3. There is no off switch 

"There is a tent pole moment of the year when we produce this ESG report but it needs to be woven through all our communications, our Twitter feeds, our Instagram posts, our day to day engagements and our media strategy.”

2. Use the ACE checklist 

• Is it Authentic: is this a salient issue to our company, or are we jumping on a bandwagon? 
• Is it Credible: do we have a convincing story to tell? Do we walk the talk? 
• Is it Effective: have we effected tangible change and can we prove it?

1. Above all, be an action leader, not a thought leader 

“We are not doing stories, we are doing work and the work will speak for itself.”

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Table of contents

1. Introduction: ESG Council Report 2023
2. Chief Value Creator?: The changing role of the Chief Sustainability Officer (CSO)
3. What is driving change: The role of stakeholder management
4. Building an integrated ESG strategy
5. Doing well by doing good: Resilience, risk and the reputation value of ESG
6. The Future of ESG?
7. ESG - a time for leadership, focus and communication, but above all action.

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