Access to capital, the ability to attract and retain talented labor, negotiating power with partners and suppliers, influence over public policies…these and other determinants of business success are built on one fundamental thing: trust. And in a media-fueled climate of mounting distrust, government regulators are introducing policies designed to protect citizens and inform investors about risk management, strategy, and governance.
As just one example, last year the U.S. Securities and Exchange Commission (SEC) proposed a new rule whose requirements would include reporting about material cybersecurity incidents, along with a company’s policies and procedures to identify and manage cybersecurity risks and the role and expertise of management and the board of directors in assessing and managing cybersecurity risk. This rule is expected to be enacted this year, adding to the general angst surrounding environmental, social and governance (ESG) communications.
“Today, ESG communication has become both necessary and dangerous.”
How quickly things change. Once dismissed as brand-burnishing – humble-bragging about the company’s use of renewable energy or its investments in employee education programs – ESG information is increasingly demanded not only by regulators, but by the full complement of a business’ stakeholders. At the same time, political pressures have caused some organizations to dial back their ESG communications – a phenomenon known as “green hushing” – for fear that talking about them will invite unwanted criticism. Put another way, today, ESG communication has become both necessary and dangerous.
The law of supply and demand dictates that when a resource is scarce, its value increases. Thus, in a climate of declining trust, trust itself becomes more precious – and by extension, a strategic advantage. How to get more of it? Communicate more, not less. Having produced ESG reports for companies across a range of sectors, we’re struck by the way these reports increasingly resemble a 10-K. And why not: the information they contain is both material and strategic. The best examples trace out a story arc that builds trust – which, after all, is built on a combination of words and actions. First communicate what you intend to do, then do those things, then communicate what resulted. Repeat, repeat, repeat, and over time, trust will flourish.
Not surprisingly, companies that invest the most in ESG communication are among the most trusted in their sectors – and also among the most successful by more traditional measures. This isn’t an accident; on the contrary, it’s entirely strategic and deliberate.