The past two years have seen a surge of interest in Environmental, Social and Governance, or ESG, issues. That surge came with many companies talking up, productising and event branding ESG. The net result is to have made the moment rather faddish. ESG critics have labelled the practice “woke”. It is time to set the record straight: ESG is not a “woke” exercise. It is trust-building, it is boring work, and it is good for us.

There are widespread expectations for businesses to act, as the pressing issues of our time — climate change, social inequality, and ethical business behaviours — need sustained commitment to resolve. Regulators across Asia are stepping up ESG disclosure requirements: for example, financial institutions  in Japan, Hong Kong and  Singapore have announced climate reporting policies. Beyond increasing disclosure requirements, stakeholders are demanding real actions from businesses.

What this means is sketched out in the 2022 Edelman Trust Barometer Special Report: The New Cascade of Influence. This special edition of the annual Trust Barometer surveyed over 20,400 respondents in 14 countries. In the latest iteration, more respondents expected brands to take a stand on issues that not only affected  consumers but also the employees working for them, as well as the way their products were made and used, and the brands’ core values. Respondents were  at least four times more likely to buy or use a brand that  took action on any of the following: human rights; healthcare access; climate change; gender equality; and racial justice. These issues and concerns are environmental, social and governance in nature.

ESG is fundamentally a business transformation process that demands tedious and intentional hard work — precisely how companies will build trust with their customers, employees, and investors. Delivering trusted impact will require companies to undertake  a journey that compels them  to examine  the effects on stakeholders.

Often, companies focus on the outcome: ESG messaging and product positioning, rather than take on the serious work of first embedding sustainability practices into their entire business. Focusing on communication runs counter to consumers who say they are looking for communication and action from brands. Respondents in the Trust Barometer Report  expected to see evidence of a brand’s stand on both “what they say” (62%) and “what they do” (63%).

Nearly six in 10 said they would  stop buying a product if they  did not trust the company behind it. So, for example, if a beverage company markets “eco-friendly” packaging for its drinks without visibly addressing other material issues such as water consumption and pollution, as well as labour practices across the supply chain, it can be seen as “greenwashing” and that in turn generates further reputational risk to the company.

ESG work needs to start with a rigorous process of assessing and prioritising key ESG issues to address. We are talking about boots-on-the-ground work. If done well, this kind of work builds public trust and goodwill, provided the company is prepared to highlight the behind-the-scenes integration and mitigation efforts. Here are key things to consider when a company activates an ESG journey:

  • Engage stakeholders to inform on your strategy — Stakeholders include decision-makers in the company, customers, employees, investors, board members, and even local communities in which a business operates. Investing time and resources in stakeholder engagement to understand concerns will inform and build credibility in an  ESG strategy. This will enable companies to gain an understanding of the business environment that they operate in, have more visibility on companies’ exposures, and identify risks in order to put in place processes that address them early on.
  • Top-down leadership endorsement with bottom-up actions — As with any business transformation, the ESG journey is a complex process in which the whole organisation needs to be aligned. Set aside time to discuss and agree on ESG priorities and galvanise commitment by increasing awareness and understanding among internal employees. A simple way of rallying everyone’s thinking is around the 4Ps: People, Planet, Profits and Purpose.
  • Go beyond compliance — ESG disclosure regulations are strengthening in the Asia-Pacific. As sustainability or ESG reports are becoming mainstream, consumers are also expecting brands to move beyond complying with regulations to create impact. While there is still a long way to go, companies that activate their journey, invest in, and accelerate their ESG integration now, and identifies areas to create value, will be ahead of the pack.
  • It’s an ongoing process — The ESG landscape is constantly evolving, whether we are working on reporting and disclosures, materiality assessments or decarbonisation. Frameworks and standards will keep being updated. Organisations need to stay on top of the changing environment, track their progress and adjust their strategy and priorities if need be. ESG integration is not a one-off exercise.

Our advice to companies feeling the pressure to address ESG challenges from investors, customers, community and activist groups: activate an ESG integration process, one step at a time. Be prepared to communicate your actions after that, step by step. Along the way, you will find credibility increasing. Actions, then words, continue to be our evergreen counsel.

Jason Leow is a vice chair and the Asia Pacific Head of Edelman Smithfield, a specialist financial communications boutique within communications agency Edelman. He is based in Singapore. Joyce Cheng is Edelman’s Hong Kong-based Assistant Director of ESG.

The article first appeared in The Straits Times on 18 August, 2022.