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Board of Directors Take Note: ESG Non-Compliance Can Wreak Havoc on a Brand’s Reputation; 4 Crisis Communications Tips to Consider

Ted Birkhahn and Matt Panichas

As Climate Week kicks off in New York City, it’s difficult to ignore the backdrop of extreme weather events that continue to play out across the world. Recent and unprecedented drought conditions, prolonged heat waves and extreme weather events remind us of the devastating effects that global climate change continues to unleash on our planet. Across the board, corporations are starting to take more proactive action to integrate and scale sustainability across their value chains, but we still have a long way to go.

Pressure has been building on businesses for years to take action against climate change. Consumers have become more vocal in their support of environmental causes, and are making it known that they demand this same attention and accountability from the corporations they support — and it’s not just consumers; Boards of Directors are seeing the widespread influence of ESG programs on investors’ strategies, customer behaviors, and employee expectations. A critical, yet underappreciated aspect of ESG initiatives that is often overlooked is the threats posed by non-compliance, as well as by not communicating accurately and effectively with all stakeholders, including regulators. 

Rigorous oversight and enforcement is already underway. The U.S. Securities and Exchange Commission (SEC) recently announced the creation of a Climate and ESG Task Force in the Division of Enforcement, whose purpose is to identify ESG-related misconduct. Bottom line: brands that are found to be not in compliance with ESG codes and standards face significant reputational, financial and regulatory implications.

Board members should consider the following crisis communications tips as part of a broader ESG strategy:

  1. Familiarize yourself with the latest regulatory compliance and reporting requirements. Irrespective of industry, there are a range of diverse reporting requirements that pose potential risks for brands. 
  2. Ensure a senior member of the communications team is an active participant in the company’s ESG strategy.
  3. Think like an activist. Activists, customers and investors are all too familiar with greenwashing. Activists can smell BS from a mile away. By thinking like them, you will uncover potential risks that you may not have considered before. 
  4. Amid a well-publicized ESG violation, a slow, ineffective response could prove disastrous for a company’s reputation. Speed matters, but inaccurate and incomplete information will cause more damage.

While not an exhaustive list, each tip is equally important to prioritize when dealing with ESG communications. More brands are being accused of greenwashing and hyperbole as it relates to sustainability communications and activities. By demonstrating, through well-defined ESG goals and outcomes that can stand up to compliance scrutiny, Boards of Directors and brands will be better positioned to speak about ESG activities with confidence and credibility, without worrying about the reputational risks that could arise if not done properly.