Why leaders must resist the ESG backlash

The ESG backlash is underway.

Environmental, Social & Governance (ESG) investment has taken the financial and corporate world by storm, becoming a key investment requirement and a critical boardroom agenda item.

However, there is a growing ESG backlash, driven by commentators rallying against “woke capitalism,” arguing that it is forcing governments to sabotage their economies and businesses to focus on the wrong outcomes. Business leaders must resist the backlash and stay committed to their ESG endeavors to ensure future success.

Rising consumer concern (and action)

Despite the backlash, there remains growing consumer concern about people and the planet. Consumers are dissatisfied with the pace of government action and expect businesses to drive positive social and environmental change. 

Nine in 10 U.S., U.K., and Australian consumers believe businesses should act in a socially and environmentally responsible way and this concern is growing, not abating. Seven in 10 US consumers view sustainability as more important than they did two years ago.

This is more than virtue signaling by consumers. There’s clear evidence that consumers are increasingly acting to support change. A report from my company, the research technology business Glow, on the U.S. food and grocery (F&G) sector found that one in two consumers, rising to seven in 10 Millennials, reported switching brands based on social or environmental considerations.

Two of the brands benefitting from this switching behavior are Dawn and Dove. Dawn is appreciated for its commitment to reducing environmental harm and supporting wildlife impacted by environmental disasters. In contrast, Dove is recognized as a social champion for its real beauty initiatives, which promote positive body image, self-esteem, diversity, and inclusion. Both brands lead because they have strong, clearly defined, and well-communicated ESG programs.  

Consumers are not choosing brands based purely on ESG credentials. The rising cost of living is placing more importance than ever on value. Sixty-eight percent of U.S. consumers are trading down to save money on F&G purchases.

But even in this context, sustainability is important, as one in five consumers ranks ESG/sustainability concerns in the top three factors considered when making F&G purchases, behind price and quality, rising to one in three amongst Millennials. Meanwhile, more than one in 10 consumers report ESG/sustainability considerations as the primary reason for not trading down to save money. 

ESG can help bolster loyalty and provide leading brands an alternative to fighting on price, especially among younger consumers who represent the future success of every business.

Purpose helps profits

Detractors argue that a focus on ESG risks a business neglecting its duty to maximize returns for shareholders, but that assumes you can’t be as profitable and do good. McKinsey highlights that doing good is good for business, citing five ways being committed to sustainability helps businesses create value including top-line growth, cost reductions, regulatory and legal interventions, productivity uplift, and investment and asset utilization.

Significant new studies are surfacing evidence for how consumer behavior is driving top-line growth. Glow’s analysis using over $1 trillion of NIQ F&G sales data identified that leading brands grew revenue faster on average than those consumers deemed less socially and environmentally responsible. 

This data also revealed a material revenue opportunity (or risk) for brands based on position within the category. For example, Glow estimates that up to $850 million of the sales within the U.S. F&G personal care category is driven by ESG considerations.     

Evidence supports that getting ESG right can have positive impacts on revenue and profitability.

Strategy vs. execution

The key to getting it right starts with a solid strategy. But it is the execution where many businesses fall down. Additional commercial value can be realized if all stakeholders (investors, staff, customers, and consumers) are educated around issues, investments, and progress toward the ESG goals they care most about.  

Here are four ways leaders can ensure their ESG efforts drive the recognition they deserve:  

1. Establish the right KPIs: Make sure your business is aligned on the right measures for ESG success from top to bottom. Operational management metrics like the Social Responsibility Score can provide a total measure of ESG execution across the organization.
2. Benchmark perception: Your ESG opportunity (or risk) depends on where you sit relative to your competitors. Undertake ESG benchmarking to identify your risk/reward profile, so you have a baseline from which to act.  
3. Assess current programs: Maximize impact to ensure programs are resonating with all stakeholders, as they often don’t. The key is to identify whether gaps are due to the programs or their marketing, so that appropriate action can be taken.  
4. Optimize communications: It’s critical to avoid greenwashing, but in doing so many businesses end up greenwhispering by failing to communicate all the great things they are achieving. Comms pre-testing will help ensure key messages cut-through while ESG brand tracking will enable you to identify and respond quickly to changes in consumer sentiment.    

Join the resistance

The challenges around ESG and sustainability for business are becoming more urgent. As the ESG backlash continues, business leaders must resist.

ESG is not a panacea for a poor product, expensive price, or bad customer service, but a relevant alignment with the things your stakeholders really care about is a differentiator that helps drive growth.

Now is the time to set your organization up for long-term success by leaning into ESG programs and measuring their true impact across your business.   

Tim Clover is the CEO of Glow.