How organizations can best navigate the polarization & politicization of ESG

As the rhetoric around ESG becomes more politicized and polarizing, how can companies ensure they stay focused on delivering benefits to stakeholders?

One of the top three biggest challenges for organizations in 2023 is how to de-politicize environmental, social & governance (ESG) issues, says John Friedman, Managing Director of ESG & Sustainability at Grant Thornton, adding that the challenge is being felt across industries and sectors, and the legal industry is not immune.

In fact, law firm leaders recently have described the delicate dance that needs to be done when the firm is representing clients that could be on opposing sides of an issue in matters that have nothing to do with each other. The new term for these situations is corporate political responsibility, which is when an organization takes a stance on particular topics that are happening right now.

Gayatri Joshi, former executive director of the Law Firm Sustainability Network and Partner at Vorgate Legal ESG Impact, says she sees the pressure law firms and other legal organizations are facing around corporate political responsibility increasing in 2023, citing the responses by many law firms in early 2022 to the Russian invasion of Ukraine as evidence that this pressure is already happening.

One head of sustainability at a law firm commented how some of its largest clients are asking the firm to agree with its public statements on an issue.

Another aspect of this is the pressure that some law firms are getting from their own clients, which may prefer that their suppliers to be on the same side of an issue. One head of sustainability at a law firm commented how some of its largest clients are asking the firm to agree with its public statements on an issue.

Still, another difficult element is how to navigate potentially opposing views between employee groups and clients. Activism among stakeholder groups is increasing; for example, a law firm might have a group of employees who are passionately advocating for the firm to reduce its carbon footprint while it’s also representing a company in the fossil fuel industry in a transactional matter.

Whatever the specific circumstances, pressure from stakeholders on alignment in values is increasing and unlikely to change direction any time soon. Organizations need to be smart in how they respond, and many organizations are using these best-practice tactics to do so.

Best ways to navigate politicization of ESG issues

Reframe ESG as part of business efficiency — Make the case that ESG boils down to smart business. In many respects, depoliticizing ESG is an expanded SWOT analysis that seeks to widen the lens of enterprise risk and opportunities.

In 2019, the Business Roundtable, an association of chief executive officers (CEOs) of America’s leading companies, re-defined the purpose of a corporation in a public statement signed by 181 CEOs saying that corporate leaders should be committed to operating their companies in a way that benefits all stakeholders, including customers, employees, suppliers, local communities, and shareholders.

This shift from shareholder value to stakeholder capitalism was important because the statement expanded a corporation’s purpose beyond shareholder primacy, a directive that had been around since the 1970s.

Today, stakeholder capitalism is analogous to ESG in many ways. Indeed, ESG or sustainability might be the name du jour, but essentially, business measures of performance, success, efficiency, and effectiveness across stakeholder groups are well established and pretty consistent whether a company has a formal ESG strategy or not.

Employ holistic stakeholder listening and align responses to corporate values — Understand that the landscape and navigation of thorny issues will continue and perhaps get even more precarious. The best way forward is through authentic listening with individual stakeholders.

“The guidance I give is to relate these issues on how it is going to affect someone and what the corresponding action plan is,” Joshi says. “If your client happens to be on the opposite side of an issue, they can respect that you were following up directly to the stakeholder group that communicated that the issue was important.”

“Demagoguing is happening. But when you look at the individual elements in [ESG], it’s very hard to actually find reasons why you should not support it.”

For example, one law firm leader recently shared how their firm used this tactic in the aftermath of the Dobbs decision, which effectively struck down abortion rights on a federal level. The firm immediately was pushed by its younger employees to take a public stance. And while the firm did not take a public stand on Dobbs, it did respond with authenticity to feedback from one of its key stakeholder groups — its younger talent — in a myriad of ways.

Should a client have expressed dissatisfaction on the firm’s actions, the firm could then point to how it’s aligning to its values as an employer that relies heavily on high-quality talent. In that role, the firm seeks to provide a culture of care that actively listens to its employees. While a particular client may not agree with the firm’s actions, it can respect the fact that the law firm listened and responded as part of its commitment to support employees and continue to attract and retain key talent.

Drill down into the details — Polarization around ESG is real, and in many cases, it is blowback to progress. Examining a specific issue, such as greenhouse gas reduction or corporate governance, within ESG can be an effective way through the murkiness. Indeed, there is general acceptance of climate risk and the need for diversity to produce better business performance.

“Demagoguing is happening,” says R Mukund, CEO of Benchmark ESG. “But when you look at the individual elements in [ESG], it’s very hard to actually find reasons why you should not support it.”

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