Australians do not trust corporate ESG claims

Thursday, 01 June 2023

Sue Vercoe GAICD
Partner, SEC Newgate

    Recent research shows that while many Australians expect companies to work for the common good, few trust that the corporate sector is pulling its weight when it comes to ESG, writes SEC Newgate partner Sue Vercoe GAICD.

    More than 50 per cent of Australians can’t name a single company that’s doing a good job on environmental, social and governance (ESG) issues. It’s an incredibly sobering statistic for companies and boards that are investing significant resources and time on ESG to build their reputation, respond to rapidly evolving regulations, become more attractive to investors and become an employer of choice.

    These issues are critical to boards’ responsibilities around strategy, stakeholder engagement and people and culture. Directors need to understand what issues the community cares most about, what it expects from their organisation, and the reality of how the community makes judgements regarding what’s “good” or “bad”.

    SEC Newgate has conducted a large body of qualitative and quantitative research, including its annual ESG Monitor survey of more than 24,000 people in key global markets, and its bi-monthly Mood of the Nation report in Australia. This research has identified something we’re calling the “great disconnect”. Australians have high expectations of corporates and want them to use their power and influence for good — but they are not engaging and don’t trust what they are being told.

    The great disconnect

    It’s useful to unpack the disconnect concept further to understand some of the inherent contradictions in what Australians say they want, versus how they act and make judgements. Firstly, while they expect companies to take action on ESG issues, they want them to do it at their own cost and aren’t that keen to pay any more themselves.

    Secondly, while Australians are at least moderately interested in the topic and want companies to communicate what they’re doing, they’re not actively looking for information. Only three per cent said they have proactively sought out information on what companies do in the ESG space.

    Views on a company’s ESG actions appear to be based on snap judgements based on pre-existing views about the organisation or industry, what they’ve heard recently and information they can recall. Negativity bias means that bad news sticks in their minds far more than good news. The recency bias means they’re also much more likely to recall companies that have recently been in the news or have done a lot of advertising.

    Only eight per cent of Australians say they trust what companies claim about their ESG activities and performance. Of the remainder, 47 per cent say they don’t trust them and 45 per cent aren’t sure. This makes it tough for companies acting in good faith, which are taking action and communicating to customers, but finding their efforts are not getting cut-through.

    What do Australians expect?

    What people want from corporates on ESG varies quite a bit based on whether they are responding through the lens of citizen, customer, retail shareholder or employee. It’s possible for one person to wear all four hats and swap them in a space of minutes.

    As citizens, Australians acknowledge that large companies play an important role in driving the economy, providing goods and creating jobs. But most feel they’re motivated primarily by profit and they make business decisions at the expense of the environment and society.

    They want companies to use their power and influence for good — to not “be bad”. They want them to acknowledge those in their ecosystem who contributed to their success and give back even more if they’re doing well. And they want organisations to do what they say.

    As consumers, people say they’d like to feel better about who they give their money to. However, they don’t want to sacrifice cost and convenience. They want companies to take action on ESG issues and have it hard-baked into the organisation’s DNA, but they don’t think they should have to pay extra for it. Some three quarters (73 per cent) of Australians say companies can be profitable while performing well on ESG.

    As retail shareholders, people initially appear to care less about ESG issues and admit they’re primarily focused on a good financial return. While many will name some industries they don’t want to support, beyond that they’re generally looking for stable, well-run companies, or those at the cutting edge.

    However, the more they talked about ESG issues, the more they came to the view that good governance is critical in terms of risk mitigation.

    As employees, people expect companies to treat their staff well — to pay them fairly, to encourage them to progress and to be inclusive in hiring and promoting.

    Beyond that employees want to feel proud about the company they work for. It’s clear that employees are a critical audience for an organisation’s ESG initiatives, as they’re the ones paying close attention. They are very quick to condemn an organisation’s purpose if what they see is out of alignment, but conversely, they become strong advocates if they see their organisation walking the talk.

    The way forward

    The good news is that there is a way to bridge the gap. We see many organisations start by diving into discussion of what ESG action they should leverage to enhance their reputation, or even what ESG actions they should be taking. They see what others are doing and try to assess what seems to be working.

    But our research shows you have to start with the “who” — who the organisation is and the industry you’re in. You need to reflect on how you’re currently seen by your customers, stakeholders and broader community — and the impacts they see you having on the environment and society more broadly. You need to examine this in the context of their values and issues they care most about and monitor this over time.

    Our research demonstrates that people respond quite differently to an initiative that is not attached to a specific company vs one that is. For example, focus group participants responded positively to hearing that one multinational company had achieved net zero. However, when the identity of the company was revealed as a social media organisation, the sentiment shifted as participants then thought the environmental achievement was a distraction tactic to, in their words, “gloss over” their negative social impacts.

    Once you’ve nailed the issues that are authentic to your organisation you can move on to the “what”. The starting point should be to look at what people care about. At the moment, there is strong focus on more immediate cost of living concerns, but we’re continuing to see empathy for the more vulnerable in the community as a long tail from COVID-19, as well as a continued focus on the environment and climate change.

    The next step is to differentiate between actions the community sees as simply a matter of hygiene — that meet baseline expectations — and those which will give you a reputational bump. By all means, talk about the hygiene actions, but don’t expect a pat on the back for them. And be aware that if you don’t deliver, then you’ll likely be severely punished. One good example here is paying employees what they’re owed. You can’t exactly promote the extra effort you make to ensure your payroll is in good shape, but if you’re named in the media for underpaying, that will linger in people’s minds.

    It’s important to keep in mind that people anthropomorphise companies and think of them as if they’re people. They also judge them the same way — looking at character and intent. Our research showed people asking themselves four fundamental questions when they were asked whether an organisation’s ESG action is “good” or not — is it genuine, is the organisation committed to it, will the actions make a difference and where’s the evidence?

    Finally, how to go about communicating your chosen actions. Limit this to one or two things. You need a strong narrative anchored in the values of your target audience and to make sure that it covers the four questions people use to assess an organisation’s ESG claims. And don’t forget your employees — after all, they’re the ones paying the closest attention.

    Four key questions people ask themselves about an ESG initiative

    1. Are they genuine? Does the organisation really believe in it? Are they honest about who is benefiting?
    2. Are they committed? Is it a one-off initiative or is the organisation making a sustained and consistent effort?
    3. Is it meaningful? Will the action do anything? Will it make a difference or is it just virtue signalling?
    4. How do I know they’re really doing it? Are they accountable? Can the organisation show evidence in an accessible and transparent way?

    Sue Vercoe is a partner and social/market research MD at strategic communications advisory firm SEC Newgate.

    This article first appeared under the headline ‘Fixing The Disconnect’ in the June 2023 issue of Company Director magazine.  


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