08 / 09 / 2023

Opinion: The ESG Debate Lacks Nuance and Misses a Crucial Point

By Ralf Lodberg, CCO and Partner

Values versus profit. The recent discussions on ESG communication have drawn lines in the sand and polarized opinions. However, the real solution lies in the nuances.

I can fully understand why many business leaders may be perplexed. The discourse on ESG communication has veered towards two misunderstood extremes. On the one hand, we hear of CEOs caught in a quandary between values and business, given the rising expectations that companies should have a stance on various matters. Hence, ESG objectives must be given equal weight to profitability goals.

On the flip side, there's a sentiment that businesses should dial back on value-driven communication and revert to the "old virtues" of focusing primarily on their core operations. Some even question whether the very ideal of businesses being value-driven is declining.

However, the entire debate seems misguided. In today's context, profit and social responsibility are not opposites but two sides of the same coin. Thus, it's counterproductive to view value communication as a black-and-white predicament. While it's true that championing specific values may have financial implications, neglecting them can prove even more costly, as evidenced by the Chr. Hansen case.

Should companies simply adhere to ESG standards without talking about it? Of course not.

Not All Efforts Deserve Applause

Companies must evolve with the times; passivity is a losing strategy. The issue arises when actions are superficial. Many businesses, perhaps lazily, jump onto popular bandwagons (e.g., Pride) without deeper contemplation. However, the values you communicate bind you, and a purely communicative strategy is often doomed to fail.

Consequently, businesses need to realize that they can't always seek applause. Not all ESG endeavors should be made into marketing campaigns or be integrated into branding. And this is where many get confused or simply lack strategic focus.

Missteps occur when companies base their value communication on agendas distant from their core business, ones they ultimately can't support when challenges arise. However, when you whole heartedly embrace causes closely aligned with your operations, you're not just compliant; you can genuinely build your business around them, gaining substantial influence in the process.

For instance, it's coherent for the crayon brand Crayola to actively support children's learning through creativity, Nike to fund projects enhancing community sports, and the skincare brand Dove to challenge beauty standards, virtually becoming synonymous with 'real beauty.' This close alignment with core values makes sense. But can companies then ignore major issues like climate change and diversity that automatically impose responsibilities, whether they like it or not?

No. But it boils down to marketing vs. substance. For example, Novo Nordisk has dodged criticisms in animal testing and climate change by meticulously showcasing data-driven improvements without resorting to fleeting Facebook campaigns.

Here to Stay

The clothing brand Ganni serves as another good example. They admit that the fashion industry can never be fully sustainable, but they do everything possible to minimize its impact. This transparency stands out, as opposed to brands throwing money at "sustainable fashion" campaigns that ring hollow. There are countless self-congratulatory "woke" campaigns that practically invite criticism.

The term "wokeism" has already been coined as a derogatory phrase, which irks me, for its essence merely suggests that we need to "wake up."

If business leaders don't recognize what's at stake in current times, they're undoubtedly asleep at the wheel. It's never been free to have an opinion, but it can be costlier not to. It's become even more crucial for companies to know precisely what they stand for and what they don't.

So, no, there won't be a value-driven retreat for businesses. ESG is here to stay, both in practice and communication. However, companies must get better at discerning which initiatives they undertake behind the scenes without seeking recognition and which ones they integrate outwardly into their brand - and genuinely stand by them.

This article was originally brought in Børsen.

Want to learn more about wokeism and the ESG debate? Read Ralf Lodberg's article in KForum.