ESG leaders are not backing down amid increasing scrutiny

The term "ESG" is facing pressure in the United States. A growing number of shareholders are questioning corporate ESG investments, and amid political polarization and accusations of "woke capitalism," this opposition is becoming more frequent and spreading across more industries.

Admittedly, corporate ESG and corporate social responsibility (CSR) initiatives are under greater scrutiny, but the headlines only tell part of the story. As someone who has spent years helping companies connect social and business impact, I have observed a more nuanced and positive trend in corporate-level ESG efforts.

ESG investing remains active. In fact, during this period of heightened scrutiny, many organizational leaders have not shelved these important initiatives; instead, they are showing greater ambition in their ESG efforts, just becoming more low-key.

So, what is happening behind the scenes?

Viewing ESG and CSR through the same strategic lens

Many decision-makers are steering their companies away from the term "ESG"—according to an April study by Benevity, two-thirds of decision-makers are actually doing so. However, these leaders continue to invest in sustainability initiatives.

Despite a few dissenting voices, business leaders know these investments have practical value. Most commonly, organizations now closely link ESG and CSR efforts, treating philanthropy like supply chain improvements—as another lever to achieve the company's established ESG goals.

This is a logical evolution: there is a clear connection between the environmental and social aspects of this work. While environmental issues affect everyone, their impact on marginalized communities is more pronounced. These communities may live in areas prone to flooding and air pollution, or lack the infrastructure to cope with increasingly destructive climate disasters. If disasters occur, socioeconomically disadvantaged climate refugees will also face greater difficulties when migrating.

This is not a far-fetched hypothesis. According to the Institute for Economics and Peace, based on current global trajectories, more than one billion people are expected to be displaced by climate change by 2050. Ultimately, the climate crisis does not occur in a vacuum. Companies play an important role in addressing very real social justice impacts, which often also affect their own operations.

Even in the polarized social climate where anti-ESG shareholders and politicians condemn corporate advancement of ESG measures, the importance of CSR work is reaffirmed. Conversations with ESG and CSR leaders show they remain committed to their goals, and this has not shaken their resolve. Some may simply need to take a slightly different approach to achieve them.

This sustainability approach involves placing ESG and CSR—traditionally seen as two separate tools addressing related issues—under the same strategic lens.

How leaders are aligning ESG and CSR investments

ESG leaders face growing pressure from regulators, shareholders, and other stakeholders to accurately report on their environmental and social initiatives and claims. Under these requirements, it is reasonable to consider ESG and CSR initiatives together. ESG leaders are addressing this challenge in the following three ways:

1. Establishing new communication channels with CSR teams

People are often surprised to discover the extent to which climate issues extend to other social justice issues. Many ESG leaders consult their CSR counterparts to gain first-hand insight into how initiatives the organization already supports intersect with climate justice. These insights and partnerships enable ESG and CSR leaders to think more strategically and holistically about their approaches.

Greater coordination between ESG and CSR teams also drives the need for standardized reporting. To persuade skeptical shareholders, ESG leaders need specific metrics showing how ESG and CSR work together to drive particular outcomes. This will require ESG and CSR teams to jointly break down long-standing data and information silos.

2. Leveraging the credibility of nonprofit organizations

A company looking to reduce its carbon footprint can try to solve the problem on its own, or leverage the expertise of nonprofits focused on reforestation or restoration efforts. ESG leaders are increasingly choosing the latter. According to Benevity's platform data, grants to nonprofits focused on natural resource conservation and protection ranked 13th in 2023, up from 42nd in 2021.

When companies choose the latter, they not only achieve climate goals faster and more effectively, but also leverage the voices of nonprofits to demonstrate impact. Nonprofits often have naturally credible, ethical, and authentic reputations. By elevating the role of nonprofits in helping companies achieve their sustainability goals, corporate leaders can avoid much of the negative criticism ESG efforts have faced in recent years—while driving more environmental impact through nonprofits.

3. Engaging employees from day one

According to a recent Deloitte study, regardless of what some shareholders think, many employees care about climate. When ESG leaders find ways to engage employees in the organization's commitment to environmental improvement and provide opportunities for employee participation, it benefits everyone.

Offering volunteer opportunities, such as dedicated service days, can go a long way: according to another Deloitte study, employees who receive one day of volunteer leave per quarter are 15 percentage points more likely to believe the company's commitment to social responsibility is sincere. In addition to volunteer opportunities, companies should also consider providing clear and consistent communication about the steps they are taking in their sustainability efforts.