How The Backlash To ESG Can Create A Crisis For Companies

Companies should not be surprised when they face harsh criticism for doing what they think is the right thing, in the right way, and for the right reason.

A case in point is efforts to implement environmental, social and government policies (ESG) in business and investing.

What’s At Stake

Given the divisive nature of society, people are more likely than not to have strong opinions—or outright and vocal opposition to the actions, decisions, and policies of companies and organizations.

The backlash to ESG can create a crisis by putting corporate executives on the defensive because of critical comments on social media, protests, and boycotts.

Backlash

To date, almost half of surveyed businesses (48%) have experienced backlash to their ESG policies or activities, according to a study released last month by The Conference Board.

The survey of 125 executives at large companies found that 31% of the backlash came from state policymakers and political candidates, 22% from federal policymakers, 20% from employees, and 9% from customers.

Different Forms Of Blowback

That backlash has manifested itself in various ways, according to Paul Washington, executive director of The Conference Board’s ESG Center. They include:

• Government officials who have held press conferences and hearings, issued letters and introduced legislation and regulations.
• Consumers who have engaged in boycotts.
• Employees who have expressed their views at meetings and in internal surveys.

Buckle-Up for A Bumpy Ride

And things could get worse before they get better: 61% of companies expect ESG backlash to continue or intensify over the next two years, according to The Conference Board.

The businesses said they expect the backlash to spread from federal and state officials and candidates to local officials, consumers, employees, and business partners. “So, executives need to buckle up for a long and bumpy ride,” Washington warned.

“The increase in both intensity and frequency of backlash will likely be driven by emotionally charged topics, such as hot-button social issues and the transition to more sustainable forms of energy that raises fear of job losses,” he predicted.

Political Opposition

Sometimes that backlash can take an organized and partisan form.

This past March,, 19 governors signed a joint statement opposing President Joe Biden’s ESG agenda. They claimed that “The proliferation of ESG throughout America is a direct threat to the American economy, individual economic freedom, and our way of life, putting investment decisions in the hands of the woke mob to bypass the ballot box and inject political ideology into investment decisions, corporate governance, and the everyday economy.”

The governors said ‘they plan to lead state-level initiatives ‘to protect individuals from the ESG movement,’ including potentially blocking ESG at the state and local levels and withholding state pension funds and state-controlled investments from firms that use ESG,” The Hill reported.

Silver Lining

“Despite the negative connotations, ESG backlash can be a clarifying moment for companies,” according to The Conference Board’s report.

“It can prompt companies to reevaluate their ESG strategy, priorities, and commitments. This requires companies to engage the board and senior management in a candid discussion of whether the company is still ‘in’ ESG and multi-stakeholder capitalism and, if so, in what ways.”

How To Respond To Backlash

Just as they would for any other crisis, business leaders should ensure their crisis management plans account for potential backlash to ESG—or any other policies, actions or decisions they make. And they should include those scenarios when testing their plans in drills and simulations.

“CEOs can’t respond emotionally, but they need to understand the emotions that are fueling backlash–including those arising from hot-button social issues and from the fear of losing jobs in the transition to renewable energy,” Washington concluded.

About The Survey

The Conference Board survey was conducted between April 4 and April 27, 2023. Half of the companies have annual revenue of $11 billion or higher.

Twenty-five percent were in the financial and insurance services industry, 25% in the financial and insurance services, 10% in manufacturing, and 9% in business and professional services.