Why the ESG narrative is not convincing

We still have a long way to go. And advancing on this journey does not depend only on communication professionals

Last week I participated in an Aberje Mining Communication Lab, sponsored by the Brazilian Mining Institute (IBRAM). The theme was “ESG for Mining: Fundamental for the business and the future of the industry.”

The discussion started hot when a participant posted in the chat: “How can the companies responsible for the accidents in Mariana and Brumadinho talk about ESG?” I was wondering, how does a mining company get out of this widespread guilt? Under what conditions would society believe its speech?

The ESG context probably doesn’t allow for a good way out. Why do I believe ESG doesn’t build trust in society? Because it doesn’t represent society’s perspective – ESG represents the investor’s perspective. ESG takes a predominant approach to risk. Investors do not want social impacts – such as corruption – or environmental effects – such as a dam failure – to spoil their profits.

The Communication Challenge in Building Trust

ESG’s speech puts business leaders in a defensive position. They need to show investors that they know how to manage social and environmental risks. The most advanced companies in ESG are rewarded and enter into ESG funds, where the cost of capital is cheaper. Therefore, ESG, in many cases, represents an extrinsic motivation for the company’s leadership. The logic is: if you don’t, your credit will be more expensive, or investors will not even finance you. It is the society that expects companies to prioritize health and safety to protect lives. Applying ESG logic to answer the question: “Why protect lives?” is: because otherwise, our cost of capital becomes more expensive. What society wants to hear is: because life is more important than profit. In this dominant logic of ESG, communication professionals will always be “firemen” and “crisis managers” – as one participant put it in the chatbox. But they won’t convince anyone.

Leadership & Narrative

The ESG speech does not provide a narrative that manages to calm and convince society. And that puts the challenge in the lap of communication professionals. In the discussion and chat of the event, we saw that communicators are stuck in the old corporate discourse: ESG has always been the north of our decision-making. But the facts speak louder! There were management failures that caused the deaths of hundreds of people. The current standard of communication is: we are reacting to pressure from investors, and therefore the company’s motivation is extrinsic. We are responding to what the market imposes on us, and if there were no such pressure, we would be continuing with our business as usual.

New leadership and a new narrative

Now, you may ask me: how to get out of this? In my opinion, we need the following three ingredients — first, new leadership. We need more humane leaders who can admit they were wrong and apologize to those affected and society in general. That put the human being at the center of decision-making, even if it costs more from time to time.

Second, the leadership does it willingly, with an intrinsic motivation because it is convinced that human management is better long-term management for all stakeholders – including shareholders.

Third, a new narrative. This narrative is already being born! We see it in the discussion about the purpose of companies and the legacy of the leadership that wants to leave something more than a well-run company that delivers profit to shareholders. But the goal is not limited to reducing risks and trying to continue the existing business “doing less harm than before.” The purpose demands innovation and “creating more well-being” for society in the future. In this scenario, ESG is one of several levers that support purposeful entrepreneurs on their journey by offering a cheaper cost of capital. Still, it is not the cause of the behavior.

The critical role of communication

In the discussion, we highlighted the vital role of communication in pushing deeper thought into leadership. What is the narrative we tell the market? How can we communicate this narrative more sincerely? I firmly believe that the area of communication will become more critical in the future. But what is needed is a communication work with enough self-esteem to tell the leadership that words need to be based on facts – and if the facts aren’t there, they won’t make up stories. The best way to show that the company has changed is to give a voice to critics, customers, beneficiaries. If past critics recognize that the company has changed and start praising the new management, it provides more confidence than when it promotes itself. Moreover, measuring ESG impacts as seriously as financial metrics is helpful. And if the leadership has the humility to recognize that it made a mistake rather than becoming defensive, we’ve already gained a lot.

I asked at the end of the event: “In your opinion, which company has an authentic ESG narrative?” Nobody suggested a name. We still have a long way to go. And advancing on this journey does not depend only on communication professionals!

 

*Originally published in Época Negócios magazine, on June 30, 2021

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