Corporate Commitment to ESG Driven by Value Creation

There is no turning back. Corporate focus on long-term value inextricably links to environmental, social, and governance (ESG) factors. Despite “anti-woke” sentiment heightened by state and federal politics, the business case for adopting sustainability strategies is reflected by the growing number of companies in multiple geographies and industries that incorporate sustainability measures into their incentive plans.

Even so, companies are having to navigate anti-ESG sentiment, according to Farient’s newly launched annual research, 2024 Global Trends in Stakeholder Incentives: What’s Next? The research covers nearly 2,000 companies in nine countries, including the S&P 1500 in the U.S. Individual case studies show how corporate leaders are responding to pushback in three general ways:

■ Changing how they talk about ESG: Some companies are modifying their terminology to avoid using the term “ESG” altogether. Instead, they favor other words or terms that do not attract the same sort of political attention, such as “sustainability,” “social responsibility,” or “impact.” Other companies are maintaining a focus on their ESG efforts internally and through data reporting but have shifted their public messaging.

■ Focusing on “material” ESG factors tied to shareholder value: Some companies’ ESG strategies are becoming more targeted. For example, they are focusing on sustainable operations like reductions in energy consumption and energy costs, and explaining how those efforts will help the company’s bottom line.

■ Doubling down in support: Some companies, especially those with long-established ESG strategies and public commitments, are doubling down on their support and messaging of sustainability efforts. These efforts can serve to counter ESG opponents and send a message to stakeholders that they are not backing down from their commitments.

 

Case Study

Dow is a case study presented in the seventh annual 2024 global trends report, produced by Farient in collaboration with the Global Governance and Executive Compensation (GECN) Group, where Farient is a founding partner. Dow, a material sciences company, states as its purpose “to deliver a sustainable future for the world through our materials science expertise and collaboration with our partners.”

Dow published its first sustainability report in 2003, and it adopted ESG measures in its short-term incentive plan in 2020. The company has since adopted carbon emissions reduction measures in its long-term incentive plan and made progress on what it now calls its “Ambition” metrics.

Find out more about Dow’s sustainability journey by downloading the full report:

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