The ESG Advocate's 2025 Letter to CEOs

When the going gets tough...

Dear CEO,

As always, I hope you had a safe flight to and from Davos. With extreme weather rampant globally, you never know how even private jets might be affected.

Well, it took some time, but the growing popularity of ESG you were so worried about at Davos last year appears to be easing. What a difference a year makes! We’ve gone from ‘the regulations aren’t going anywhere’ to an SEC climate rule that is indefinitely on hold, and even discussions about CSRD being abolished.

Congratulations, your company’s long, arduous journey to better understand your business operations, the risks, and the opportunities while providing comparable data for investors is near an end.

Wait, did you think this was just about reporting to regulators?

In case you missed it under the fog of AI excitement, ESG data helps you understand your business better. Since you’ll likely be making the transformational investments already in data for AI, you might as well keep trucking along with ESG data. As it turns out, this could be one activity that builds the evidence you need to run your business without much interference.

However, it might not be up to you as the sheer uncertainty, whipsaw stakeholder sentiment shifts, and governance scrutiny is rising. Whether you only serve as a CEO and have to answer to the board or serve on a board yourself, the governance tipping point is here.

Uncertainty

If there is one word for this year, perhaps emerging around Q4 of 2024 and through Q1 of 2025, it would be ‘uncertainty.’ Trump’s election and flurry of first-week Executive Orders have CEOs scrambling to set up war rooms to understand what is at stake.

As I wrote on November 12, 2024:

You might think greenhushing or pulling back on ESG efforts is the answer if you are a company leader. That is understandable as every company now has one big stakeholder they must worry about as they make decisions - the new President.

Imagine what you could do if you had a cross-functional war room focused on your material stakeholders, not just this one! But I get it. After all, in the linked article above, Anna Tavis, chair of the human capital management department at New York University’s School of Professional Studies, said this:

They are preparing, but they don’t know what to prepare for.

She’s talking about you, CEO. I mean, this statement reflects the definition of uncertainty. While it is understandable to back away from ESG-related programs, shutting down working programs on shifting whims is no way to run a business.

Here’s the thing about Trump. For all of your trips to Mar-a-Lago, finding new lobbyists to engage the administration, and the public statements on ESG pullbacks you might make, something you do will make it into his crosshairs, and you have no idea what it could be.

Just ask the Danes.

But if you need some business examples, CNN has a variety in one read. Here’s one example: John Deere was looking to make a business decision to move manufacturing to Mexico, and Trump threatened tariffs.

ESG or not, everything you do is now under a microscope if the President can capitalize on it in a talking point.

I’m betting that investors will quickly pick up on this notion and look for high-quality boards and management teams to navigate this minefield. Between the high levels of CEO turnover in 2024 and eroding trust in corporates and their wealthy leaders, you better hustle to ensure you are actively on top of your business, have consistent and durable plans, and clearly, and I mean DANG clearly, communicate any changes or business plans.

Pick your examples to follow carefully

Many of your peers are making rash decisions, matching the President’s pace of change. A President lasts a few years, and your company must plan to outlast one administration.

Still, reputational risks are running high, especially around DEI efforts. However, if you live by the reputational risk that one side draws, you will die by it from the other side.

Please don’t follow the headlines because they are getting it wrong and pushing a binary narrative. Ask someone with domain expertise to figure out what is happening, and you’ll hear that adjustments are being made, not pullbacks. Pick the examples you follow carefully and clearly understand what others are doing before making a move.

I’ve only seen a handful of companies shut down everything they appear to be doing at a material level, perhaps Meta most notably. As a CEO, you need to be fully aware of what your DEI programs do, look at what’s working and double down on it, and, yes, shut down programs that aren’t working.

After all, why would you ever stop a working program? That is just poor leadership.

Perhaps most importantly, you need to control the narrative, as any change will result in a headline that you are retreating/pulling out/backing away from DEI, which will put your stakeholders on edge and result in a backlash.

For example, recently, Target, which has the same material stakeholder connections as Costco, as outlined by CEO Brian Cornell here, has reportedly backed away from DEI.

Well, read Target’s statement on Belonging at the Bullseye. You’ll see that they are still intent on representing the communities they exist in (a point Cornell tied to their success previously) and are keeping their stores inclusive for all, which may/may not run counter to their pulling of Pride merchandise last year. This statement isn’t forceful or straightforward, but it still shows activity.

McDonald’s wrote something similar in a letter to franchisees, despite what is being publicly reported:

McDonald’s position and our commitment to inclusion is steadfast. Since our founding, we've prided ourselves on understanding that the foundation of our business is people. As Fred Turner said, “We’re a people business, and never forget it.”

Attention to this particular issue isn’t only coming from inside the US. DWS CEO Stephan Hoops recently caused some waves in his common sense LinkedIn post about anti-woke rhetoric.

…the debate being dominated by the statements of the extreme 10% on either side.
Let’s look at what unites us and what most of us can agree on. In other words: Let's reconquer the debate.

The 80% will have a pretty good idea which accomplishments of the last decade we want to keep… and where it makes sense to further adjust.

An excellent point is to avoid the values-driven drama by focusing on the business to ride through that vast 80% middle. That doesn’t mean pulling back; it means making it material. Again, watch who you follow.

Before you shut down any DEI or ESG program, it’s worth doing what I wrote about last week and looking at three things: materiality, externalities, and trade-offs. Any business change you have, ESG or not, will have these. DEI isn’t about goals or commitments; it is about people, and there can be business value if you look. The current adjustments seem to be more about that than anything else.

Make adjustments, but don’t worry about restating your goals. Keep efforts focused on people, organizational culture, and your business.

In other words, do the work!

Governance Scrutiny

So, let’s return to that uncertainty and the scrutiny that may be coming.

I want you to think back to the past five years. As extreme weather events increased in the Global North, we saw the rise of scrutiny around the environmental metrics companies disclosed. After the murder of George Floyd and COVID-19, all kinds of stakeholders scrutinized company efforts around DEI and employee stakeholders.

We’ve come to the governance tipping point with this new level of uncertainty. Shareholders will scrutinize boards, CEOs, and the management team to determine who has the skills to navigate this new operating environment deftly.

This is where any ineffectiveness you have at either the core business, finance, risk management, technology acumen, and, yes, even ESG integration, will shine as bright as a lighthouse beaconing to investors that risks are on the horizon.

2024 saw a rise in the US to support binding majority shareholder voting for directors, meaning they must go if voted out. It isn’t a suggestion. Shareholders might reclaim a key benefit of stock ownership that US companies have long overlooked: their power over the company. Keep in mind that institutional investors have been democratizing proxy voting, too. As the current political winds pressure proxy advisors, I anticipate this will continue.

So, here’s a last piece of advice.

Things are getting tough out there. It is hard to plan proactively for the future when any step you might make could trigger a trap, but now is the time to prepare and not make decisions rashly. Keep your war rooms going as the pace of external political pressures is unlikely to change soon, and review any business changes you are considering carefully.

Regardless of whether or not you are making moves around ESG, I recommend checking out Senior Communication Advisor Emily F. Porro’s very grounded article in CSO Futures on navigating this environment. Reframe ESG as risk management, focus on materiality, communicate transparently and lead with resilience, and recognize the short-term pressures with the long-term.

Along with Porro’s recommendations, Hoops’s statement, and the ongoing reassessment of climate and DEI goals, I believe we’re about to see something new emerge from companies, and you should pay attention because it could help.

Companies will begin to articulate the business value of their ESG work more effectively.

Why?

Well, because the business value of their efforts trumps the reputational risk that political winds blow in. Storytelling with evidence will be the future indicators of quality governance. The company that shows it completely understands its business and can provide the evidence to support its arguments will build durability through the uncertainty.

In many ways, disclosures are giving way to this new form of communication, so you aren’t out of the woods yet.

Think carefully before you make a move, and if you haven’t gathered the evidence that you know what you’re doing in times of good performance and lulls, you best start today. If you need help, you know where to find me!

Sincerely,

Matthew Sekol
The ESG Advocate