Four Best Practices for Communicating ESG Impact to Key Stakeholders
Given a heightened interest in how companies approach environmental, social, and governance (ESG) issues, leaders must be strategic about communicating ESG impact to stakeholders. This means that leaders must clearly communicate goals, action plans, and progress on ESG issues both internally and outside the organization.
According to PwC’s 2021 Consumer Intelligencer Survey, consumers and employees want companies to proactively set ESG best practices. The survey found that consumers say companies should be doing more to advance environmental issues (57%), social issues (48%), and governance issues (54%). Most employees (86%) also prefer to work for companies with which their interests and values align.
Similarly, investor interest in ESG has also gained momentum. A recent report from Morningstar revealed that investment in sustainability-focused funds reached nearly $2 trillion earlier this year. Additionally, global sustainable funds attracted a record $185.3 billion in the first quarter of this year.
With stakeholders paying close attention, knowing what information to share and which channels best reach target audiences is essential. Below, we share insights into how leaders can effectively communicate ESG impact pulled from an Expert Hour session with Adam Day, executive coach and strategy expert at the Medici Group. Expert Hour is a Kindred membership benefit providing members with one-on-one access to subject matter experts. It also pulls insights from two Kindred Assembly events featuring panelists discussing the board and investor perspectives on ESG evaluation.
The Importance of Clear Communication
Outlining the company’s commitments and plans to address ESG issues results in a number of benefits to the organization, including:
- Building up the corporate reputation among employees, consumers, and investors.
- Showcasing how the company is living up to its organizational purpose.
- Improving the company’s ESG rating, which is used to measure the sustainability or ethical impact of the organization.
- Increasing transparency, which serves as a source of public accountability for leaders.
An organization’s ESG communications should should clearly lay out its approach to addressing issues and demonstrating progress. Some questions for leaders to consider in annual communications to stakeholders — from the Long Term Stock Exchange’s Amy Butte — include:
- Which stakeholder groups does the company consider critical to long-term success?
- What is the company’s impact on the environment and its community?
- How does the company reward employees and other stakeholders for long-term success?
- What is the company’s approach to investing in employees?
- What is the company’s approach to diversity and inclusion?
Butte noted that these recommendations are not prescriptive; however, when a company answers these questions, the board is more likely to understand how the company’s ESG initiatives will impact long-term success.
Similar to the board, investors are also looking for data that informs the company’s long-term potential. According to Pan, relevant information could include the diversity breakdown of the workforce over the lifespan of the business, the diversity breakdown of suppliers, and processes for procurement.
Additionally, companies should ensure that information on ESG impact is easily accessible from a variety of sources. Consumers and investors alike turn to traditional media sources, social media, and other owned channels to learn about a company’s efforts. Investors in particular increasingly rely on AI and natural language processing to scrub data sources and paint a holistic picture of a company’s ESG initiatives, impact, and progress.
Best Practices for Communicating ESG Impact
Before a company begins developing its communications strategy, leaders must ensure that efforts are authentic to business values, whether they are focused on diversity, sustainability, or corporate leadership. Adam Day recommends finding the balance between impact and authenticity and aligning efforts with business interests. When they are too disconnected, a long-term commitment may be unsustainable. However, if they are too focused on advancing the business, they appear self-serving. Organizations focusing on strategies and communications that demonstrate they are going beyond expectations will see deeper impact over time.
Below are some key points to help shape the company’s ESG story and provide insight to internal and external audiences.
1. Communicate with consistency.
When it comes to telling the company’s ESG story, it is important to proactively share progress, regardless of where the company is in its journey. The danger of waiting for a crisis to speak up is that it can breed skepticism among audiences, according to Coretha Rushing (former CHRO of Equifax), who spoke at a Kindred Assembly panel earlier this year. Communicating ESG impact with consistency can help build authenticity with consumers and other stakeholders. “It’s better to put forth what efforts you’re making, even if you haven’t gotten successful yet,” Rushing noted.
2. Embrace end-to-end transparency.
For today’s stakeholders, simply stating a commitment to tackling ESG issues is not enough. Companies must be prepared to tangibly demonstrate a switch to sustainable and ethical business practices. Adam Day notes that consumers are increasingly attuned to how products are brought to market. To earn customer loyalty and build brand influence, leaders should be able to speak to the origin of products, material inputs, manufacturing practices, transportation, wage rates, and more. Additionally, they must be prepared to adjust and improve practices when they fall short, long before there is consumer pushback.
3. Align internal practices with communications.
In the aftermath of last year’s protests against systemic injustice, many companies were called out for sharing public commitments that didn’t live up to internal practices. An accountability gap exists when a company’s external communications are out of sync with business practices. Day recommends defining a clear company mission and ensuring that internal operations and company culture live up to set expectations. Addressing issues such as pay equity, talent diversity, and inclusive team cultures help create legitimacy and authenticity in external communications.
4. Report on metrics.
How an organization chooses to show year-over-year progress will depend on where it is in its ESG journey. But demonstrating tangible progress is important when communicating ESG impact. Experts recommend companies start with tracking metrics that are important to a company’s specific business, industry, and approach.
For investors, the Brunswick Group’s Amelia Pan recommends reviewing resources such as the SASB materiality map, or reaching out directly to investors to understand expectations. For its part, the PwC study advises that companies define key metrics, document data and reporting solutions, and use technology to enable efficient reporting.
As organizations ramp up their efforts in the ESG space, clear communication can help companies stand out from the noise. Leaders that can articulate the company’s commitment to an issue, how it plans to achieve its set goals, and the metrics it will track to get there will create authenticity and drive long-term sustainability.
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