ESG refers to a set of criteria that investors and organizations use to evaluate a company’s impact and behavior in three areas, which are Environmental, Social and Governance. These criteria are used to make socially responsible investment decisions and to encourage companies to operate sustainably and ethically.
The biggest problem with ESG is how its framed. By changing the complicated language of ESG, companies can get a lot more support even from the most skeptical consumers who believe that ESG is forcing beliefs on them. According to research that was conducted between April and August 2023 in USA, people believe that companies should have a “responsibility beyond serving shareholders.” Even those who are skeptical about ESG believe in many aspects of ESG, including strong support for efforts to be more environmentally sustainable.
Separating the substance of ESG from the language of ESG offers a new framework for communication designed to support companies who want to act on environmental, social and governance topics.
ESG was created as a financial tool for evaluating long-term business risks and was never meant to be the name of a social movement. Even after all the controversy, only half of Americans have heard the term “ESG” and only one in five have favorable opinions about it. Since ESG is only an acronym with no accepted definition, it feels empty and empty terms make easy targets. The term of ESG is damaged and with critics driving the debate, terms that are demonized like this rarely make a full recovery.
Negative framing of the term has been directly connected to a growing feeling among conservatives that they are the victims in today’s culture wars. The research has also shown that some respondents agree with the statement that “too many people are trying to force their opinions down other people’s throats.” To some of them, companies are choosing a side by forcing customers to accept that position or to take their business elsewhere. This language of forced morality is embedded in the language used by companies in “support” of their ESG efforts. On issues spanning from social justice, diversity and inclusion to climate change, many companies use moral, values-laden language with phrases like “doing the right thing” and being a “force for good.” These statements were also the most polarizing overall because they implied that if you disagree with the actions, you’re “wrong” or “bad”, which represented people who reacted negatively to messages as villains.
Some ESG critics have called for companies to get back to a shareholder-only approach to business, but the research showed that most respondents agree that “companies have a responsibility beyond serving shareholders to make a positive impact on the world.” People on both sides also agreed that companies that are environmentally responsible, who take care of their employees and those who hold their leaders accountable are more likely to succeed. When consumers were asked about what makes a successful business, they focused on how companies treat their employees, local communities, and the environment. These concepts make up the core of ESG, but when they are framed in moral terms, they drive polarization.
By changing the focus from ESG to “responsible business” we can better engage consumers across the political spectrum and minimize the risk of controversy. Being “responsible” carries fewer moral connotations than ESG or other terms might.
Changing the overall term of ESG is only the beginning of improvement. To communicate as a responsible business, companies need to make three fundamental shifts. Almost every industry has a jargon, so the first step would be to make the jargon more understandable to consumers. Concrete language more reliably communicates the message and makes more people feel invited to the conversation. Second thing the companies should do is to fit their brand and not force partnerships that aren’t connected with the brand. Companies need to put the necessary thought, research, and intention into their messaging to show supporters they’re sincere. Lastly, companies should consider two actions: “publicly promoting diversity, equity and inclusion” and “committing to serve the needs of more diverse population.”
The core philosophy of ESG is still broadly supported and people still see a link between businesses operating responsibly and succeeding financially but the challenge still lies in properly framing ESG actions to keep that link between responsible business and successful business front and center.