Sustainable flip-flopping: ESG leaders must adapt to their dwindling influence

Lotti Hawkins Lotti Hawkins
20th July 2023

There’s no denying that ESG has experienced a dramatic U-turn. Whereas two years ago, it was at the very top of the agenda for investment firms, it has now worked its way down the priority list.

Whatever the rationale behind the change in course, it has put most Heads of ESG in a virtually impossible position. Suddenly, the job they were bought on to do has fundamentally changed. Faced with less resources and dwindling influence, they now need to carefully toe the line internally, work out exactly what they can realistically achieve, and then gain senior buy-in for their plan.

As it stands, most ESG teams face two different – but equally challenging – situations. In some cases, their firm has stuck to their ESG objectives but has deprioritised ESG, effectively asking teams to hit very ambitious goals and completely change how the company operates without the resources or authority to make it happen. It’s like being asked to climb a mountain in a pair of flip flops.

They already faced an uphill struggle prior to the U-turn. After all, there's an obvious clash in objectives between ESG teams and investors who are under pressure to maximise returns above all else. Without the mandate for change they had before, the Head of ESG’s job just became even more challenging. And it’s fair to assume whose fault it will be if the firm does not hit its sustainability targets.

However, the other situation is that the firm has changed – or sometimes completely scrapped – their objectives. Numerous investment firms have, for example, removed themselves as signatories to Net Zero targets. This presents a bit of a moral dilemma for the ESG lead and will no doubt have led to some soul searching. As the ESG representative in their business, they are left to work out how to deal with the marketing and PR implications of this backtracking.

In this situation, the Head of ESG is also left in limbo while they work out what they can and should be doing. Often, they will have joined the firm feeling empowered and looking to have a real impact. Now their plans have been put on hold and they might have been relegated to doing the bare minimum for an ESG department, such as reporting.

So, how can they move forward? Well, this is what the industry’s been like grappling with the last year or so.

The first step is to create a new strategy that aligns with any new objectives and prioritises what would have the most impact, with tangible, realistic goals. For example, with regulation making it an obligation, it’s likely that many firms will want to prioritise the “E” and focus on decarbonisation over goals around social impact or governance.

However, in setting goals, it’s important to be realistic and transparent about what the firm can and will achieve, learning the lessons of the over-promising that has taken place lately. Before this ESG backlash, lots of firms were quick to shout about all the wonderful initiatives they were starting. Now, the ESG leader must work out exactly what they can achieve and stick to it.

Finally, to make that happen, they must make sure that the wider business is on board with their plan, especially at the senior level. It must be collaborative, or they will end up clashing with other parts of the business. It’s all well and good trying to implement changes that will have a real impact but – considering the diminished status of ESG at the moment – they must ensure they have a mandate for their plans. Only then will they be able to successfully push things forward without obstruction.

Previous Next

Back to blog