The Top ESG Trends We're Watching 2023

Big changes are ahead in the ESG space. Here's what communicators need to know. 

Over the past two decades, we’ve witnessed growing demands on companies to be more socially and environmentally conscious. This pressure isn’t coming from the fringes; it’s a core value of stakeholders from employees and consumers to nongovernmental organizations to investors and regulators.

What was once commonly referred to as corporate social responsibility (CSR) has morphed into “ESG” — environmental, social and governance. This somewhat nebulous umbrella term refers to principles, policies, rankings and reporting guidelines that seek to measure and assess a company’s impact on — or financial risk exposure to — a host of issues falling under the three ESG pillars.

ESG is currently in a period of remarkable transition. Once primarily seen as a reporting framework for investors — and a way to demonstrate that socially responsible business practices are good for the bottom line — ESG now commands significant attention from the public, the press and governments around the world.

With that attention, however, comes increased scrutiny and skepticism, and 2022 proved to be a rough year for ESG, with criticism coming from a variety of fronts. On the one hand, some conservative politicians in the United States have labelled ESG as a misguided initiative of the “woke” left. On the other, environmental activists claim that ESG is yet another example of corporate greenwashing.

In 2023, it’s mission-critical that organizations clearly demonstrate to an increasingly sophisticated and engaged public that their values-led commitments are real — and that their progress toward those goals is real, too. At the same time, brands will need to be prepared to meet increasingly rigorous compliance and reporting standards and demonstrate that ESG objectives are also aligned with other business objectives, including profitability and growth opportunities.

As we advise our clients on their ESG programs and policies, we have been closely monitoring
these shifts. The top ESG trends we’re watching this year:

1. Growing demands from both consumers and employees

Today, customers and employees care about more than quality and price, pay and benefits. People see companies as being extremely important actors on the world stage. WE Communications 2022 Brands in Motion report finds that from 2019 to 2021, the number of people expecting brands to create stability in uncertain times rose 30%, and that number held steady in 2022.

The most passionate stakeholders? Young people. A recent WE survey finds that 67% of young people (aged 18 to 34) in the United States say taking significant action to fight climate change is a high priority, compared with 59% of U.S. adults overall.

A tailored approach to communications to individual stakeholder groups — from customers to employees to community members — is critical to reputation and brand health. They aren’t focused on profit-and-loss statements; they just want to know the brands they’re engaging with align with their values. That’s why it’s important to partner with team members to address these concerns and share ownership of new policies and practices.

2. Increased scrutiny and criticism

In the early days of ESG, sentiment was largely positive and investment grew significantly. This makes a lot of sense: Who wouldn’t be drawn to the idea that you can make money while also doing good for people and the planet?

But without clear definitions, standards, regulations and ESG reporting systems in place, attitudes have shifted and skepticism has grown. ESG is under increased scrutiny, particularly from the media, consumers and policymakers in the United States and the European Union. We see this skepticism in headlines that question the sincerity of ESG efforts, and in WE’s latest Brands in Motion research, where people said that only about 50% of the brands that have made commitments to making the world a better place are delivering on their goals.

For example, after the 2022 U.N. Climate Change Conference (COP27), many international headlines called out examples of greenwashing. Others faced criticism for “green-wishing” (alluding to progress when there isn’t any) or “green-hushing” (making bold announcements about net-zero or carbon-neutrality commitments without providing any information about what the organization is doing to reach them).

Rigor around disclosures is coming (which we’ll discuss later in this piece), but in the meantime brands must ensure that they’re providing consistent and transparent information about how they’re progressing against ESG commitments in order to assure stakeholders that their commitments are real. At a time when charges of greenwashing/wishing/hushing are on the rise, this is essential. Brands have the opportunity to demonstrate the depth of their commitment by telling the story of their progress year-round, rather than saving this information for the annual report. Companies can also communicate with the public and the press about these efforts through microsites and infographics, using both the organization’s own channels and media announcements and events. WE’s Brands in Motion research finds that 74% of respondents say brands should be transparent when informing the public about actions they’re taking in response to current and emerging issues in society.

Furthermore, be honest about challenges and setbacks as well as progress. For example, one of WE’s clients has set ambitious sustainability goals and has a long track record of meaningful commitment to sustainability. But in 2022 the company reported some challenging news — its Scope 3 emissions increased. Rather than sweep it under the rug, the company openly discussed the setback in the media as an opportunity to articulate its plan for reducing those emissions in the future. It was a good way to build trust with stakeholders and re-emphasize its commitment to creating a more sustainable planet.

3. Heated political debates on ESG’s role in business

In the past few years ESG has also become a partisan political issue in the United States. Today, we’re seeing high-profile, largely conservative politicians criticizing companies and their leadership for practicing “woke capitalism.”

We saw a notable spike in the use of the term — meant as a pejorative — after the stock market took a turn for the worse and energy costs began rising in 2022. Critics linked sustainability priorities with higher prices on goods and services and lower investment returns and accused brands of putting trendy environmental or social issues ahead of their core purpose, which they say is to maximize profits for shareholders. In some U.S. jurisdictions, conservative politicians took action against companies that invest in ESG, such as BlackRock and those that have taken stands on social issues, such as Disney in its opposition to Florida’s Parental Rights in Education bill (colloquially known as the Don’t Say Gay bill). Now that the new Congress is in session and the 2024 U.S. presidential campaign is kicking off, we expect to see culture wars continue to ignite or increase over gas stoves, electric cars, power savers and more. The communications sector has a key role to play in correcting misinformation and underscoring the business case for ESG. This is a good time to share success stories that demonstrate how companies have reduced costs or boosted profitability with ESG solutions, such as investing in clean energy and greening buildings, operations and supply chains.

4. Tighter ESG regulations and oversight

ESG is facing pushback in part because of inconsistencies and a lack of transparency in the very systems that were developed to streamline it.

In 2023, we expect to see significant changes on that front, as the regulatory space firms up and once-voluntary reporting and disclosures mechanisms become mandatory. The European Union’s recently passed “Corporate Sustainability Reporting Directive” introduces more detailed and comprehensive ESG standards for EU companies and multinationals in that market. In the United States, new Securities and Exchange Commission rules related to climate-related disclosures are expected to be released in April, and recently passed laws with significant environmental components — the Inflation Reduction Act and the CHIPS and Science Act — will go into effect. In the Asia-Pacific region, several country regulators are introducing more rigorous ESG reporting formats and frameworks, and APAC shareholder activists and nongovernmental organizations are pushing companies to uphold their ESG promises.

To operate successfully in 2023 and beyond, organizations must ensure they’re complying with the new standards before they go into effect. Take a hard look at your organization’s targets and commitments and ensure it has a clear path to reaching them. For communications professionals, this presents an important opportunity to tighten up brand messaging on ESG, providing clear metrics and tangible results. This could include publishing an annual sustainability report (or revamping/expanding upon your existing report) or having senior leadership make a public statement/commitment on the company’s ESG priorities and goals in the short, medium and long term.

The road ahead

As demand grows and scrutiny increases, it will become clearer which brands are truly committed to long-term and comprehensive ESG strategies, and which ones are merely ticking boxes. In 2023, ESG can no longer be siloed into one or two departments or seen as charity endeavors separate from organizations’ central operations. It must be embedded into the core of the business.

The changes and the challenges ahead are significant, and the uncertainty in this space will continue. The good news is your stakeholders don’t expect perfection, but they do want to see clear and steady progress. You don’t need to solve every societal problem, but you do need to show that your company’s actions are sustained, substantial and real.

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