AMPLIFY  VOL. 37, NO. 4
  

When we think about the future of corporate responsibility, we think about not only what might be, but what has been. For a long time, the conversation centered around corporate social responsibility (CSR) and typically involved highlighting actions that furthered some social goal that was both beyond the interests of the firm and what is required by law. More and more, managers face challenges that require them to take an integrated approach that balances legal, economic, ethical, environmental, and societal concerns across a variety of stakeholders. Today, responsibility is no longer about discrete actions but rather a set of long-standing efforts to create value and adhere to purpose.

At the same time, managers exist in a society where certain fundamental problems, such as worsening environmental degradation and social inequality, are central factors driving increased corporate engagement. These can, at least in part, be directly attributed to corporate activity. As a result, many believe there is a corresponding responsibility on the part of corporations to do something about these problems. Historically, we have been able to tell when a company is being irresponsible (e.g., “greenwashing” or causing other types of harm). In fact, as I argued in a previous article, there are various degrees of harm that can elevate a firm’s irresponsibility.¹ But what we mean by responsible behavior (and what label we use) has somehow become a focus in and of itself.

Over the past decade, we’ve seen an increase in discussions about what it means to be a responsible business. Many businesses use the term “sustainability” to cover all their responsible business practices. Others use environmental, social, and governance (ESG). Not surprisingly, questions have emerged about how and whether these terms relate. Some believe that while CSR aims to make a business accountable, ESG criteria make the business’s efforts measurable. ESG is tied to various sustainability reporting frameworks, whereas CSR can consist of brand- and culture-building statements. And yet, according to news from this year’s World Economic Forum Annual Meeting in Davos-Klosters, Switzerland, executives and boards of directors are seeking new ways to tout corporate responsibility while omitting the term “ESG” to avoid alienating investors, customers, and employees. One factor is the wave of anti-ESG legislation in the US during 2023 and similar anti-ESG sentiment brewing in Europe.

Although ESG has generally been aimed at capital and growth building, ESG investing has faced challenges, too. The use of “ESG” in corporate earnings calls, whose content is an indicator of company goals, is at its lowest since 2020.² Rolling the three ESG pillars into a single rating has allowed carbon-intensive companies to log positive ESG scores, and some mutual funds and exchange-traded funds have been accused of greenwashing, using ESG in their fund names with no corresponding change in their investment holdings.³ 

Still, it’s hard to argue that a business acting as a good citizen in the communities where it is located, paying taxes on the profits it makes, and compensating employees fairly is not a responsible business. Partly because of this recognition, some business leaders recently argued in the Wall Street Journal that the term “responsible business” should be used instead of CSR or ESG.⁴

Amid these concerns, sustainability and accountability still matter to many consumers and investors, as well as to employees. Gen Z and Millennials, for instance, show a preference for purpose-driven companies. Many would leave their current job for one that has a more positive impact — even if it impacts their pay — according to the latest “Business in Society Report” by Bentley University and Gallup. A full 71% of workers under age 30 took that stance. And 29% of them said they would even accept a 10% pay cut to do more meaningful work.⁵

As a result, the contemporary context of corporate responsibility involves a deep and wide set of concepts and tasks. Fundamentally, it involves working with multiple stakeholders and a range of disciplines. Managers then face decisions around how to take ownership of a number of company impacts throughout the value chain, including design, production, marketing, sales, and communications. And because corporate responsibility is tethered to calls for greater accountability, managers must also consider how their corporate governance framework serves to encourage, restrict, and ultimately shape the company’s relationship with society.

In This Issue

Navigating these crosscurrents is a challenge for management. In this issue of Amplify, we explore the conflicting pressures governments, shareholders, customers, and workforces are exerting on firms and their leaders in emerging corporate responsibility strategies involving ESG issues.

In our first article, Ryan Flaim and Maureen Wolff offer detailed advice on how to combat anti-ESG sentiment. Acknowledging that ESG has become a political tinderbox, the authors say companies can still reap the benefits of their ESG initiatives. They suggest a three-pronged solution that starts with closely aligning ESG goals with corporate strategies, as Trane Technologies and Adidas have done. Second, tell a cohesive, integrated ESG story, including how your company refers to these efforts (use “ESG” or maybe go with “impact” or “sustainability”), using KPIs and case studies and ensuring your metrics are validated. The latter is not only the best antidote to greenwashing accusations, it’s also been shown to lead companies to make more carbon-emission reductions than companies that don’t externally verify their data. Third, Flaim and Wolff advise taking a proactive, creative approach to stakeholder engagement. One-on-one meetings with analysts and stewardship teams, ESG investor briefings (perhaps less controversially called “Sustainability Days”), and developing employee ambassadors could all be in the mix. Recent backlash doesn’t necessarily mean an ESG strategy isn’t relevant, assert the authors. Rather, by focusing on strategy, transparency, accountability, and performance, ESG can be a meaningful competitive advantage and an enabler of responsible business.

Next, Ryan M. Bouldin and Elizabeth Levy look at corporate responsibility through the lens of product design. The authors point out that when sustainability considerations are incorporated at the end of design, inefficiencies and excess costs often result. One reason these efforts come so late is that two-thirds of chief sustainability officers report through functions far from product decisions, such as corporate affairs, general counsel, or HR. Bouldin and Levy suggest a new framework for incorporating corporate responsibility into product design; its categories include equity and justice, transparency, health and safety impacts, circularity, and climate and ecosystem impacts. The authors explain how this method results in an inclusive design process that embodies corporate responsibility. Done this way, product design would include verifying worker protection, specifying greenhouse gas emissions alongside chemical and material-safety data, and choosing chemicals and materials for their lack of hazards. Finally, the authors note, although companies should be transparent about their circularity goals, they should not market their initial efforts as sustainable, as this could open them up to greenwashing claims.

In our third article, Punit Arora considers how companies might live up to various environmental commitments, a topic where we need more insight. Arora takes us into the motivation behind corporate environmental disclosures — specifically the practices of greenwashing and “brownwashing” and their relationship to innovation. The author points to brownwashing firms, which are either content with their sustainability performance or hesitant to acknowledge it for fear of backlash. These firms don’t exhibit a significant appetite for what Arora calls “ecovation” (the relationship between environmental disclosure and environmental innovation). At the other end of the spectrum are “greenwashers,” companies that express false environmental commitments. Although the press is keen to report on these instances, Arora points out that we don’t yet have data on the long-term effects of greenwashing. What the author calls “green highlighting” may be the answer: a balance of substantive action with symbolic disclosures that research suggests makes firms more likely to live up to their environmental commitments. Companies with this approach need to take note of three things: (1) firms with high visibility are more likely to gain consumer recognition and loyalty in response to ecovation; (2) firms that have been underperforming on ecovation for years are more likely to indulge in greenwashing than to make actual improvements, and (3) strong regulations increase firms’ exposure risk, making ecovation the more feasible option.

Wrapping up the issue, Oana Branzei, Dusya Vera, and Kimberley Young Milani take a deep dive into leadership in the eye of the “ESG storm.” The authors look at how today’s frames change tomorrow’s leaders and leadership, a critical aspect of the future of corporate responsibility. The stakes on leading responsibly have never been higher, they write, with leading business outlets warning companies about getting ESG “just right” while calling on leaders to “act purposefully.” How leaders solve this paradigm will change the future of corporate responsibility, say the authors. They then describe a framework that can help leaders see the future as the poly-activation of character dimensions and argue that as leaders activate a broader expanse of dimensions, including temperance, integrity, drive, and deep collaboration, their judgment becomes stronger, and additional futures open up. And as more character dimensions are exercised, the future’s leaders become more inclusive, collaborative, and sustainable — with or without the letters E, S, and G.

We hope this issue of Amplify exposes the need for a more nuanced approach to corporate responsibility and puts you on the path to improve decision-making in your organization around this important topic.

References

¹ Clark, Cynthia E., Marta Riera, and Maria Iborra. “Toward a Theoretical Framework of Corporate Social Irresponsibility: Clarifying the Gray Zones Between Responsibility and Irresponsibility.” Business & Society, Vol. 61, No. 6, June 2021.

² Butters, John. “Lowest Number of S&P 500 Companies Citing ‘ESG’ on Earnings Calls Since Q2 2020.” FactSet, 18 September 2023.

³ Gillison, Douglas, and Michelle Price. “US SEC Cracks Down on Funds ‘Greenwashing’ with New Investment Requirement.” Reuters, 20 September 2023.

⁴ Cutter, Chip, and Emily Glazer. “The Latest Dirty Word in Corporate America: ESG.” The Wall Street Journal, 9 January 2024.

⁵ “Bentley-Gallup Business in Society Report.” Bentley University/Gallup, 2023.