Reputation in the age of ESG

In the post pandemic world, there is an increased pressure, drive, and public call for organizations to be more proactive in their environmental, social, and governance (ESG) initiatives. Evidently, ESG factors encompass a wide range of issues, including climate change, human rights, diversity and inclusion, employee welfare, and corporate governance.

Organizations and business enterprises that commit to sustainability, social responsibility and good governance are increasingly seen as more trustworthy and ethical by consumers, investors, employees, government, people’s organizations, interested parties and the general public who are becoming more conscious of the impact that businesses have on society and the environment.

Companies that demonstrate strong ESG performance are often seen as more trustworthy and responsible and are, therefore, more likely to attract and retain customers and investors. Moreover, companies that have strong sustainability practices are often more efficient and, therefore, more profitable than those those without. Companies that are seen as socially responsible are also more likely to attract and retain top talent, which can improve their performance and competitiveness.

Many global companies are now using ESG as a means of improving their reputation and brand. which in turn increases the value of the organization – a metric used by investors in evaluating companies. One way in which they do this is by integrating ESG issues into their corporate strategy and decision-making processes. This involves identifying ESG risks and opportunities, setting targets and metrics, and reporting on ESG performance to stakeholders.

Thus, a global trend that can now be seen is that ESG investing and promotion have become a mainstream investment strategy. According to a recent report by the Global Sustainable Investment Alliance, sustainable investments totaled $35.3 trillion in 2020, up 15 percent from 2018. Investors are increasingly looking for companies that demonstrate strong ESG performance and are integrating ESG factors into their investment decisions.

Moreover, companies that perform well on ESG issues are more likely to attract customers who value sustainability and social responsibility. A study by Accenture found that consumers are more likely to buy from companies that demonstrate environmental and social responsibility. In addition, a strong ESG performance can help companies build a positive brand image and improve customer loyalty.

Another way in which companies use ESG to improve their reputation is by engaging with stakeholders on ESG issues. This involves communicating with customers, investors, and other stakeholders about ESG performance and initiatives, and seeking their input and feedback on ESG issues. Companies may also partner with NGOs, governments, and other organizations to address ESG issues in their supply chains or industry.

To ensure that reputation via ESG is part of the corporate agenda, organizations need to integrate ESG issues into their governance and management processes. This involves establishing clear policies and procedures for managing ESG risks and opportunities and ensuring that ESG issues are considered in decision-making processes at all levels of the organization.

In addition, organizations need to ensure that they have the resources and expertise to manage ESG issues effectively. This may involve hiring dedicated ESG professionals, training employees on ESG issues, and investing in ESG-related technology and systems.

Finally, organizations need to communicate their ESG performance and initiatives to stakeholders effectively. This involves developing clear and transparent ESG reporting frameworks and engaging with stakeholders on ESG issues through regular communication channels, such as annual reports, sustainability reports, and social media.

Many examples abound on how ESG as a reputation tool is integrated into corporate strategies. Ayala Corp. has made sustainability a core part of its business strategy. In its various integrated annual reports, Ayala has highlighted its efforts to reduce carbon emissions, promote sustainable urban development, and support inclusive growth through its various business units. The company’s commitment to ESG issues has helped to enhance its reputation and attract investors who are interested in sustainable investing.

Another way in which companies in the Philippines use ESG as a reputation tool is by engaging with stakeholders on ESG issues. This can involve dialogues with community groups, NGOs, and other stakeholders to identify key ESG issues and develop strategies to address them. San Miguel Corp. has engaged with stakeholders on issues such as water resource management, climate change, and responsible sourcing. The company’s stakeholder engagement efforts have helped to enhance its reputation and build trust with stakeholders.

Many companies also now produce sustainability reports or integrated reports that highlight their ESG performance and initiatives. SM Investments Corp. produces an annual sustainability report that outlines its progress on ESG issues. The report covers topics such as energy and water efficiency, waste management, human rights, and community development. By reporting on its ESG performance, SM Investments demonstrates its commitment to sustainability and enhance its reputation with investors and other stakeholders.

There are also several initiatives in the Philippines aimed at promoting ESG as a key driver of corporate reputation. The Philippine Stock Exchange (PSE) has launched a sustainability reporting initiative that encourages listed companies to report on their ESG performance. The PSE has also developed an ESG index that tracks the performance of companies that meet certain sustainability criteria. By promoting ESG reporting and investing, the PSE is helping to raise awareness of ESG issues and incentivize companies to prioritize them as part of their corporate strategy.

While ESG has become an important driver of corporate reputation and has gained widespread acceptance among investors and stakeholders, there are also criticisms of its use as part of reputation management. Some of the criticisms are as follows:

Complexity and inconsistency: ESG is a complex and multidimensional concept, and there is no standardized methodology for measuring and reporting on ESG performance. This can make it difficult for companies to evaluate their own performance and compare themselves to others.

Greenwashing: There is a risk that companies may use ESG initiatives as a marketing tool to enhance their reputation without making meaningful improvements in their ESG performance. This is known as “greenwashing” and can lead to reputational damage if companies are caught making false claims about their ESG performance.

Overreliance on ESG ratings: Investors and stakeholders may rely too heavily on ESG ratings and rankings to evaluate companies, without considering the specific ESG issues that are relevant to their business and industry.

Conflicts of interest: There is a risk that ESG ratings and rankings may be influenced by conflicts of interest, such as when rating agencies have financial ties to the companies they are evaluating.

Limited focus on social issues: Some critics argue that ESG frameworks tend to focus more on environmental and governance issues, rather than social issues such as human rights, labor practices, and diversity and inclusion.

Lack of impact: Finally, some critics argue that the impact of ESG initiatives on corporate reputation and financial performance is uncertain, and that companies may prioritize ESG initiatives that are less relevant or impactful than others.

Indeed, while ESG has become an important driver of corporate reputation, there are also criticisms of its use as part of reputation management. Companies need to be aware of these criticisms and take steps to address them, such as by ensuring that their ESG initiatives are genuine and impactful, focusing on the ESG issues that are most relevant to their business, and communicating their ESG performance and initiatives transparently to stakeholders.