A few months before the global pandemic, the Business Roundtable veered away from its long-held philosophy that corporations exist to maximize shareholder value. Its revised Statement of the Purpose of a Corporation, signed by nearly 200 CEOs, signaled a commitment to all stakeholders and “economic opportunity for all” as the best way to create long-term value.
That was big. And during this pandemic we’ve seen many examples of how companies have stepped up. COVID-19 has accelerated stakeholder capitalism, ESG and climate action trends already at work. Governments driving packed policy agendas need business to deliver actual impact—whether it’s development of COVID-19 vaccines or decarbonization to keep global warming below 1.5° Celsius and create the green jobs, technologies and net zero carbon economy of tomorrow.
At the start of 2021, I wrote that Capital Will Decarbonize. Just in the past few weeks:
- Mary Barra, CEO of General Motors shook up the automotive industry by announcing GM will move to a zero-emission all-electric vehicle fleet by 2035, a realignment with far-reaching implications for the economy, manufacturing, suppliers, consumers and the energy sector;
- Larry Fink, head of Blackrock, said “climate risk is investment risk” and committed the $9 trillion fund manager to using data to accelerate a tectonic capital market shift towards ESG investing and implement a Paris-aligned temperature metric to decarbonize client portfolios; and
- Janet Yellen, the new U.S. Treasury Secretary signaled the Biden administration’s focus on climate risk in the financial system and noted that the “impact of climate change and policies to address it could create stranded assets and generate large changes in asset prices.”
The world is at a tipping point. Something fundamentally new is at work: a massive economic realignment largely driven by market forces and pressure from stakeholders including shareholders, customers, consumers and talent. ESG risks and opportunities are making their way into substantive conversations in the C-suite and boardroom about business as a platform for change. What’s at stake is the emergence of new market leadership: new definitions of corporate purpose, performance and value for brands and enterprises, and the opportunity for transformative change.
The coming realignments require smart communications and stakeholder engagement. Customers, investors, employees, communities and policymakers are watching closely to see how companies will map and communicate their journey—and the yardsticks for how they measure progress. And for every business decision, there are corresponding communications issues that need to be navigated to gain stakeholder buy-in and market support. Communicators are ESG value creators and need to be at the strategy table as executive leadership plans for the future.
Numerous studies have found that companies with better environmental, social and governance performance deliver better financial and stock market performance over the medium and longer term. And that impact is likely to increase because of the huge inflows into ESG funds, shareholder engagement and voting on ESG issues, and integration of ESG into investment research and stock-picking. A survey by the CFA Institute found that three-quarters of investment professionals believe ESG ratings will have a greater impact on a company’s cost of capital in the next five years.
That is why companies are on the receiving end of a major uptick of ESG information requests from investors and other stakeholders. Some lessons we have learned from our experience with ESG communications include:
- Investors and analysts are not just looking for targets—they want to see a multi-year roadmap for strategy and capital allocation and understand how this will create value and generate returns.
- ESG is a leadership team communication. The CEO needs to own it, the executive team needs to rally around it and board members and subject matter experts can contribute invaluable insights.
- Interest is much broader than ESG and social impact funds—these issues are material for the whole market and there is a lot of education and communication needed to come up the learning curve.
- Communications to financial audiences are an opportunity to share the broader story, make news and engage with other stakeholders and the media.
One of the most difficult issues companies must grapple with is demonstrating a credible path to their net zero carbon targets while avoiding charges of greenwashing. Engagement on this issue is sure to increase. Bloomberg Green notes, “as more companies follow suit, the total volume of offsets they rely on will quickly exceed the ability of the planet to provide them.” A global financial taskforce is working to develop a carbon market to support “Reduce, Report, Offset” carbon strategies at scale. Fidelity, PIMCO and other large investors managing $33 trillion have developed a Net-Zero Investment Framework to set a global standard for net-zero investing and guide asset allocation, policy advocacy and engagement with portfolio companies. Blackrock is asking CEOs to “disclose a plan for how their business model will be compatible with a net zero economy [and] how this plan is being incorporated into your long-term strategy and reviewed by your board of directors.”
Every journey needs a roadmap. Communicators can help their organizations redefine market leadership and chart their path on their journey of stakeholder capitalism, ESG and decarbonization.