Quieting Concerns about Greenhushing

Part of your job as a corporate social responsibility (CSR) professional is to remain aware of industry trends and learn to respond to changing stakeholder demands. As the movement against environmental, social, and governance (ESG) practices has grown louder, many business leaders have become quieter about their sustainability practices. Recently, this politicization of ESG has led some companies to engage in what has become known as “greenhushing”—a company’s refusal to publicize its ESG information.¹ So, how can companies that care about environmental and social issues avoid pushback from investors and other stakeholders who oppose progressive or so-called “woke” policies? 

Understanding differing ideologies can be an important tool in learning to address concerns from various stakeholders. However, it is critical to remember that over time, research has shown that more robust environmental disclosure is associated with lower future earnings risk.² Additionally, research supports the idea that companies should continue their sustainability reporting because a better ESG rating is associated with a lower cost of debt. Specifically, the higher the ESG score, the lower the bond yields, making debt less expensive for the company and suggesting less risk for the investor.³ Ultimately, consumers are more likely to work with companies that have strong sustainable records.

As compelling as the research may be, these are nuanced conversations. Attendees of the International Corporate Citizenship Conference in Memphis heard from experts in the field who are navigating the effects of the anti-ESG movements on decision-making and managing opposition from within and outside their companies. Below are takeaways from a discussion moderated by Pat McLaughlin, former sustainability officer at Verisk (recently retired), featuring panelists Katie Fleming, chief sustainability officer and director of strategic planning and communications at Black Hills Energy; David Hackett, senior counsel at Baker McKenzie; and Stephanie Regan, director of corporate citizenship at AAON.

The anti-ESG movement

Pat McLaughlin: What do you think anti-ESG efforts are really focused on? What's the nature of these criticisms? Where do they come from? And is there any merit to them? 

Katie Fleming: I think the most common things that we see from anti-ESG backlash are really around climate and around diversity. I would say climate is far and away the most prevalent topic for us, both in terms of expectations and risk around shareholder action and proposals to do more, and then, on the flip side, going too far. We operate in states where you're seeing state attorney generals and state legislatures take action and consider legislation that would prohibit the state's pension funds from investing in ESG funds. Unfortunately, companies haven’t done a great job collectively in talking about ESG—it’s been talked about it in a way that has been politicized and has been about making goals without actions. We ultimately need to be talking about company strategy and risk and opportunities. And I think if we stay within those grounds, we have a really strong case.

David Hackett: The anti-ESG movement is hard to easily describe. If you look at the range of proposals in different states, they touch on a variety of issues and concerns. The two issues that seem most prevalent involve climate and diversity, which seem to spring—at least in part—from political perspectives. Those two issues are perceived in some parts of the country as having a negative economic consequence for people residing in those areas, and diversity, equity, and inclusion play into a notion of unfair opportunity. ESG supporters will need to think about how to talk about what they are doing and why in a different way. In particular, advocates may need to consider conveying the importance of ESG in a more convincing manner by better connecting it to the ways in which it creates corporate value, advances and enhances a company’s purpose, and long-term competitive position and sustainability. Reflective of that nexus, boards are increasingly asking for more detailed explanations of the company’s ESG efforts and supporting rationale, including its relationship to company purpose.

Stephanie Regan: I would echo what the other panelists have shared about environmental and diversity concerns with the anti-ESG movement. We operate in Oklahoma and Texas, which are two of our largest footprints. These are conservative states. Fortunately, we haven't seen a lot of backlash in either of those states, but it's definitely part of the conversation in a landscape that we need to be aware of. We've tried to be considerate of what's authentic to us and so that has been part of our response, but in thinking in terms of risk, that's something that we all need to be thinking about.

Handling anti-ESG criticisms

McLaughlin: Have you heard anti-ESG criticism at or about your company?

Regan: We've heard criticism from different stakeholder groups and it's been an interesting time to be in this space. We may be selling to large multinational corporations and their expectations of us are going to be different than say, our internal employees. We need to be mindful of what all of these groups need. I'll say we've seen a little bit less outreach from our investor populations regarding ESG because I think they've been somewhat satisfied with what we've been producing. We do have a couple who are expecting more from us, and we say we are on this journey. We're continuing to move along this pathway, so it's pretty difficult and interesting to be in this space where you're catering to different stakeholder needs.

Fleming: I think the tone and tenor of investor conversations has shifted, certainly in the last year, where we would see nearly every investor we interacted with ask questions about having a net zero-target. Are you aligned to the Science Based Targets initiative (SBTI)? I don't hear those things quite as often anymore. However, we do have investors that want to engage in ESG and stewardship, and to do so on an annual basis. For all companies, you’re trying to align our company's strategy that ultimately will meet all of your stakeholder needs, not just their expectations. The challenge is sometimes expectations change. So, what is your company going to do consistently across all of those stakeholders where you're not going back and forth or changing your tune depending on who you're talking to?

Hackett: Diversity and inclusion have become really challenging issues, particularly in light of the Supreme Court's affirmative action decision. We as a firm have made diversity and inclusion a strategic priority and been vocal about it. Doing so has not brought us criticism or attack yet. But other law firms are now facing lawsuits from law students and others saying, “I was deprived of an opportunity because you improperly biased your hiring and advancement programs and they that violate the Supreme Court's ruling.” So, like others, for the first time, we will probably have to make difficult decisions about how we as a firm respond to those situations in the future.

Adapting to changes in expectations

McLaughlin: What, if anything, are your companies doing differently these days that maybe you weren't doing two years ago?

Hackett: We are not doing much differently other than recognizing that there is some greater risk for us in the future and initiating preparations to address those increasing demands. For me, the rapidly changing landscape was underscored at a meeting where I spoke last fall to a group of 50 people where half were from Europe and half from the U.S. All the participants were from global companies and included chief executive officers, board members, general counsel, and chief sustainability officers. And the Europeans were incredulous about the U.S. “What is this anti-ESG? Climate is a significant issue. How can you not make this a major priority?” That divide is making it very challenging for U.S.-headquartered companies who now have to balance two really different world views, requirements, and expectations in considering their path forward and strategy for ESG.

Regan: We've done a few things differently; I mentioned mitigating risk. Some of our investors approached us about the fact that we don't publish diversity and inclusion targets currently. Thinking of us as a manufacturing company, we have opted into looking at gender ratios because that is authentic to us. Only 29% of the manufacturing workforce is female. So, we're looking at the promotion rates of women. We are incredibly diverse to start with, I would say, being based in Tulsa, Oklahoma; we have 69% diversity and ethnicity. But thinking through some of those targets, we also have not set a net zero target. We don't have a plan to get there fully. We had said we're going to reduce our emissions by 10% by 2025 and we do have a plan to do that. We’re looking at things that are achievable. Also, we are pivoting from calling our report an ESG report to calling it a sustainability report, and I see that trend in some of our peers as well.

Fleming: We haven't necessarily changed a lot of what we're doing because we had taken a very values-driven approach to setting our ESG strategy to begin with. If you find yourself talking about the topic of the day and how you should respond, you're having the wrong conversation. It really needs to be around what is our strategy and that way you can handle any of those issues that come up, as inevitably ESG is a living, breathing thing. We didn't set targets that we can't back up. We don't have a diversity target in terms of a quantitative target. Rather, we've taken an approach where we're showing our really intentional commitment to having an organization that feels like they're included and they belong.