How manufactured outrage tips the scales on ESG and impact
Outrage Materiality and Greenhushing
As I sat down to write this week, I almost opened with “Having just gotten through Pride Month…” and then realized this is a wildly unfair characterization and not reflective of my actual feelings. Still, it sure feels like Pride Month was something to have gotten through due to the unnecessary pressure US conservatives have placed on companies around the celebration.
This past June was an absolute minefield for companies that have historically changed their online logos to rainbows and attempted to capture new opportunities across talent attraction and retention by supporting their employees through inclusion to capturing new consumer revenue through products. While much is written about the attention of a singular month instead of supporting employees all the time, we will recognize and put that argument aside for now.
This read will instead focus on the artificial thumb pushing down on the free markets, especially on the consumer products and retail industries, and the unfortunate effects it is having and will have on ESG and impact.
Outrage materiality
Manufactured outrage against the LGBTQIA+ community and the companies attempting to capture a market turned to threats of violence during June. In effect, angry citizens are trying to direct companies on how they believe their companies should run through a narrow narrative that favors one values over sets of values.
Stakeholder capitalism teaches us to look across stakeholder groups, understand them, and engage through material intersections. Capturing talent and revenue from 7% of the US market who identify as LGBT would fit that idea. Yet, opposing stakeholders are now forcing companies to react, creating a new material risk where there was none before.
Two weeks ago, I was on a panel at GreenFin called “The Elephant in the Room: Navigating ESG’s Politicized Waters” with two brilliant women. The first is Delaware State Treasurer Colleen Davis, who I had an excellent conversation with the next day. The second is Aeisha Mastagni, a Portfolio Manager at CalSTERS. We all agreed that this anti-ESG push has brought more attention to ESG issues and increased understanding, although clearer language is needed. For Bloomberg subscribers, check out a write-up at ESG Advocates Say GOP Backlash Gives Industry an Opportunity!
Still, something else is up. While the Anti-ESG pushback was the panel’s focus, the topic spilled into the conference as a top discussion point. There is a general concern and worry out there about a pullback. During the panel, I coined a new term, “outrage materiality,” which led to much discussion after. Here’s the definition:
Outrage materiality: When manufactured outrage prevents a company from pursuing ESG opportunities, forcing the company to react to a newly generated material stakeholder or reputational risk.
We saw plenty of this in the lead-up to Pride Month with Bud Light, during June with Target’s efforts, and even bafflingly Chick-Fil-A, which I’ve previously covered. Let’s recap Target’s journey so far.
Initially, Target had preceded with Pride Month merchandise, and coincidentally the CEO accounted for Target’s DEI efforts over the past years for their growth. Yet even with this consistency for Social in their brand, Target could not claim the Pride Month opportunity, as stores and merchandise creators were threatened. For safety’s sake, Target rolled back the changes, angering both sides. More recently, seven State Attorneys General sent a letter to target over concerns of Pride merchandise targeting children.
For context to what happened, we can check back around the sentiment in May, before this escalated, Matt Walsh, a far-right commentator, tweeted this, which captures the narrative and points to the damage these conservative campaigns bring:
The goal is to make “pride” toxic for brands. If they decide to shove this garbage in our face, they should know that they’ll pay a price. It won’t be worth whatever they think they’ll gain.
Deconstructing this with an ESG lens, we have a clear threat to an ESG opportunity. In effect, this statement and the observed actions translate as follows:
If a company attempts to be inclusive, we will not allow the free markets to decide but will coordinate efforts to punish the company. As a result, we will create a risk that will outweigh the potential opportunity.
The anti-ESG rhetoric seeks to manufacture outrage to influence opportunity. Rather than staying and fighting for the opportunity, the risk appears to be winning where violence is involved, which is a dangerous precedent to allow. In some cases, the risk compounds as neither political side wins., but it gets worse.
The results of the anti-ESG rhetoric
The rest of Walsh’s tweet states, “Our campaign is making progress. Let’s keep it going.” He’s not wrong. This campaign was building well before Pride Month and seems to have momentum with companies attempting opportunities, finding pushback, and backing down. As this thumb of manufactured outrage presses on the scale of the free markets, it now threatens company operations and creates massive risk.
Larry Fink, CEO of BlackRock and who is largely credited with kicking off the ESG movement through his annual CEO letters, has stated that while he is still in favor of conscientious capitalism, he is backing away from using “ESG” due to its regrettable politicization on both sides. Unfortunately, CEOs appear to be following suit, as ESG mentions are also down on earnings calls.
Companies may also be backing away from ESG for antitrust concerns. Many companies have joined alliances on ESG-related matters, raising eyebrows about coordinated market efforts. The intersection of antitrust and ESG surfaced in 2019 when four automakers and the State of California announced improved emissions targets past the ones put forth by the federal government. Eventually, the Justice Department dropped the case after finding no wrongdoing, which I would suspect to find in any coordinated industry effort that operates inclusively and in plain sight. Still, antitrust concerns surfaced again in the letter that 19 State Attorneys Generals sent to Larry Fink, and ‘cabals’ were also a repeated talking point in the first Congressional Hearing on ESG. This is still playing out, but we’ve already seen several high-profile financial services firms leave alliances focused on net zero across the Net Zero Asset Managers initiative (Vanguard left) and the Net Zero Insurance Alliance (about ten companies have left). So, here’s the next definition (NOTE: I did not coin this term).
Greenhushing: When a company stops talking about sustainability, DEI, or ESG to stakeholders but continues its efforts.
Some see greenhushing as encouraging because even if a company isn’t talking about its work or working with others, many are continuing to progress, but there’s a lot more at stake here.
First, many stakeholders want to understand what a company is doing around ESG issues, resulting in a missed opportunity. This includes employees, as I covered in this past week’s ESG Insider podcast from S&P Global’s Sustainable1 (which contains a lot of great interviews from GreenFin). Employees have a newfound sense of purpose. If company efforts are not openly discussed and forced back into organizational siloes, companies will miss out on the opportunity to capture their employees’ creativity and institutional knowledge that can address ESG risks and opportunities in only the way the company can.
Second, many investors are looking for comparable ESG data but also examples of impact and progress against material issues and long-term systemic problems, like sustainability and DEI. If a management team is silent on its ESG efforts, investors cannot determine if a company understands its risks or how it may address them. It also cannot help Socially Responsible Investors find companies doing the work that aligns with their values. This also swings both ways, as less data means Thematic Investors who lean conservative will have less information.
Third, as companies turn inward and back away from collaborating with their competitors and value chain, we all lose, even if companies push efforts forward internally. While companies can solve internal material issues in this manner, greenhushing means that the company wouldn’t share best practices to help others shorten the process of ESG innovations. The result may be a slight short-term competitive advantage, but ultimately these industry siloes would contribute nothing to actual change or risk mitigation, especially across the shared value chain. Companies have a unique opportunity to show leadership and decentralize the pain of transition risk. That cannot happen with a siloed or proprietary approach.
In other words, check out what theslowfactory posted on Threads last week.
We need collective action on climate change, but ESG, too!
Last, as companies back away from the acronym, they may lose sight of the interconnected nature of the pillar. While companies should already be focused on ESG issues in pursuit of long-term resilience, this perspective is the power of the acronym. Without understanding the relationships between material issues, a company and its management team may make low-quality and myopic decisions that could result in new challenges. For example, check in with Tamma Carel’s LinkedIn post about this broader and deeper perspective.
We don’t need to say ESG, but…
Even though I am the self-proclaimed ESG Advocate, companies don’t need to use the acronym, so backing away from talking about it might be OK, but something is lost. Not collaborating is not going to help anyone, including the company. To check back in with Fink, while ESG won’t be talked about anytime soon, the work continues regardless, which is the rest of what he said. Companies must move past the headlines, remember that a material issue is just that, and continue to collaborate and transition. This means having a broader perception of these issues, clear language around their approach, collaboration with others, and consistency to address outrage materiality.
In the future, but even now, systemic problems will grow to a scale where non-material issues become material (known as dynamic materiality). For example, emissions are now so high that the resulting climate risk is a material issue for all. As we’ve seen, the social unrest in the US on both sides is turning citizens against each other, with companies in the middle. These massive, interconnected problems cannot be solved by one company, financial services firm, or government alone. We need companies talking and engaging because change is coming, even if some don’t want it. When change comes, companies will find that these issues are indeed material where they hadn’t been before, and possibly the management team may regret that they didn’t do more all along.
By placing their thumbs on the scale of the free markets, outraged stakeholders are not only doing American companies any favors but pushing America into the backseat of solving these global issues, which reduces competition. From a fiduciary perspective, this is what is truly at stake.