Environmental, social and governance (ESG) issues are crucial in measuring a corporation’s sustainability and ethical impact. However, a recent trend of companies avoiding discussing these issues has evolved—a phenomenon called “green hushing.” It’s a paradox in which companies with pro-environmental policies or practices hesitate to discuss them.
This article delves into the possible reasons why corporations have pulled back on discussing ESG initiatives, the companies that are still speaking up and why it’s important to do so.
According to market intelligence from AlphaSense, in the last calendar quarter s ending April through June, mentions of ESG, diversity, equity and inclusion (DEI) initiatives and sustainability on U.S.-listed companies’ earnings calls decreased by 31% year-over-year—the fifth consecutive quarter of drops. However, this doesn’t necessarily mean that companies have reduced their operational commitments on those fronts.
Interestingly, while mentions of these things have declined on earnings calls, mentions of ESG in proxy statements have steadily risen over the same period. My theory is that this indicates that actual ESG efforts have not decreased for most companies, but how corporations talk about them has changed. One could argue that the proxy statement is a more meaningful place to report and discuss ESG and the like. Many earnings calls are dog-and-pony shows for the benefit of Wall Street analysts; by contrast, a proxy statement is a more sober document that informs shareholders about company matters on which a vote is required.
Regardless of why ESG mentions have trended down in earnings calls and up in proxy statements, U.S. public corporations need to be prepared to hush no more. According to documents published on the Office of Information and Regulatory Affairs website, come October 2023, the Securities and Exchange Commission is expected to release its final rules for disclosure of climate-related risks material to a business. This will include information on greenhouse gas emissions and specific climate-related financial metrics in registrants’ audited financial statements.
Some companies are ahead of the curve and helping others on the road to consistent and verifiable environmental reporting. For example, SAP believes that accounting for carbon emissions should be treated like financial reporting, and the company’s green ledger initiative aims to facilitate this process. The green ledger incorporates an enhanced edition of SAP Sustainability Footprint Management, which enables the calculation and management of carbon emissions data throughout the value chain. It also introduces the SAP Sustainability Data Exchange, a secure platform for sharing sustainability data with suppliers and partners. Both will be available later this year in SAP S/4HANA Cloud.
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Cancel culture and the “anti-woke” movement
According to the 2022 KPMG CEO outlook, 70% of U.S. CEOs said that their company’s ESG programs improve financial performance, up from 37% a year earlier. So then, why are some companies hushing when they might be championing these initiatives? Best I can tell, it’s all about public perception. In the wake of conservative backlash against even mainstream brands like Bud Light for its collaboration with a trans influencer and Chick-fil-A for merely having a director of DEI (you read that right), I can understand why brands are being extra-careful with positioning. I don’t like it, but I get it.
Critics argue that prioritizing diversity and inclusion initiatives can distract companies from their core goals of competitiveness, efficiency, market success and delivering shareholder value. Critics also express concerns that such efforts may be seen as token gestures, potentially compromising merit-based decisions and team cohesion. However, advocates argue—and the research supports—that a diverse and inclusive workforce can bring benefits like improved innovation, creativity and decision making. In fact, according to McKinsey & Company, the most diverse companies outperform their less diverse peers by 36% in profitability.
While cautious positioning on ESG might be a pragmatic strategy for some consumer packaged goods (CPG) companies and similar brands, I don’t find that true in the technology sector. From HP’s “Force for Good” enterprise financing for sustainable companies to T-Mobile’s rallying cry to move the telco industry to net zero to Dell’s emphasis on the sustainability impacts of its Open Networking switches, no one is hushing. To be fair, I haven’t counted the words on their earnings calls, but even if the number was zero, I am pretty sure none of these companies are afraid of being called “woke.” (For clarity, the Merriam-Webster Dictionary definition of woke in this context is “aware of and actively attentive to important societal facts and issues (especially issues of racial and social justice).”
Other companies will take an easier path. “The easiest thing to do is just to stay out of the conversation and emphasize other facets of business that are going to be perceived as less controversial and more core to the traditional metrics of the business,” according to Jason Jay, senior lecturer on sustainability at MIT in a Wall Street Journal item on the matter. I do not think Dr. Jay is suggesting that companies should halt their diversity initiatives. Instead, in finding a balanced position in the ongoing debate about DEI initiatives, perhaps it is sometimes simply easier to stay quiet.
Green hushing might stem from a fear of greenwashing
A Google Cloud CXO Sustainability Survey revealed that 72% of the executives polled believe that most organizations in their industry would be caught greenwashing if investigated. Nearly six out of 10 executives admitted to overstating—or otherwise inaccurately representing—their sustainability activities.
Greenwashing is often viewed as unintentional, highlighting the importance of precise evaluation and recognizing the absence of adequate tools as a significant obstacle to genuine advancement. Corporate leaders seek improved systems to monitor their progress, with 87% of survey participants aiming to integrate enhanced measurement practices within their organizations, enabling them to establish more precise and reliable targets.
An ESG workforce strategy shouldn’t be a secret
Employee engagement, innovation and retention improve when companies are transparent about their ESG policies. A recent survey by Qualtrics showed that 54% of U.S. employees would take a pay cut to work at a company that shares their values. Meanwhile, 56% wouldn’t even consider a job at a company with values they disagree with.
ESG performance profoundly impacts a company’s employees, who are after all an important stakeholder group in their own right. According to Marsh McLellan, there is a significant correlation between ESG performance and workforce sentiment, a critical factor in a competitive landscape characterized by unpredictable employee turnover and intense talent competition. Notably, the study found that companies rated as top employers in terms of employee satisfaction and attractiveness to talent consistently exhibit higher ESG scores than their peers.
These findings emphasize the potential of ESG performance to enhance employee satisfaction and attract prospective employees. While employers can rely on word of mouth to some extent, green hushing is doing them no favors in terms of talent recruitment.
Speaking up for the future
Despite the current trend of green hushing, it’s crucial that companies speak up on sustainability and ethical issues. Unfortunately, proactive solutions for environmental and social challenges have been overly politicized, whereas entrenched problems in these areas require transparent dialogue between corporations and stakeholders.
During The Six-Five Summit, I was happy to see a lineup of business-minded, non-political leaders speak on important issues in the ESG and DEI track. I hope to see companies continue to speak up about ESG matters, to shift the narrative around ESG and to drive a sustainable future.