ESG and the Perception Blind Spot: How Communications Leaders Can Close the Gap
Blog Post11 Jun, 2020
The growing interest in Environmental, Social, and Governance (ESG) standards reflects an awareness that all companies have an effect on society that extends well beyond their earnings. Over time, ESG has become more than just a way to ensure that each company maintains its unique moral compass; now it’s also a way for investors to assess risk, and a way for companies to demonstrate a greater kinship with their customers and employees.
This, in turn, presents a unique opportunity for communications leaders. Not only are ESG criteria increasingly a key influence on public perception of companies, they are strongly tied to stakeholder behavior. By effectively communicating their ESG efforts, companies can influence their public image, have a positive effect on sales and their ability to attract and retain talent, and increase customer loyalty—the key supportive behaviors that drive business success.
Why ESG public perception matters
Public sentiment regarding a company’s Environmental impact, Social performance, and Governance standards is often thought of as amorphous, but fortunately, it’s possible to measure how the general public evaluates companies’ ESG efforts and what impact it has on overall business performance. Specifically, the Perception-Based ESG Score™ is a strong predictor of public and consumer behavior.
For example, a positive sentiment with regards to ESG is associated with some significant benefits:
Benefit of the doubt. Fewer things will help a company survive times of crisis than having a high level of trust with the public. A company that’s seen as ethical and fair, committed to protecting the environment, and transparent will be more likely to be viewed as a sincere ally.
The correlation between a company’s Perception-Based ESG score and consumers’ disposition to give them the benefit of the doubt in times of a crisis is 0.96, which is strong and positive. It is the highest among all other business impacts measured by RepTrak.
Willingness to recommend. Positive word of mouth—especially in an era in which online chatter and mentions by well-known subject matter experts can turn individuals into worldwide influencers—offers a powerful opportunity for companies. Members of the public often will want to promote only those brands that reflect their own core values.
The correlation between a company’s Perception-Based ESG Score and consumers’ willingness to recommend it to others is 0.93.
Willingness to buy. Consumers perceive that the company positively affects people’s lives, works to protect the health and well-being of its employees and the community at large, and is reducing its environmental impact.
The correlation between a company’s Perception-Based ESG Score and consumer’s willingness to buy from them is 0.90.
In addition to being key supportive behaviors, these three outcomes are crucial to a company’s license to operate—the informal societal consensus that a company is worth doing business with.
All of which means companies should be concerned with managing their ESG perception as carefully as they manage other aspects of their business.
Actions vs. Perception
Meanwhile, many investors also consider ESG factors as a way to mitigate risk, which in turn has given rise to a cottage industry of agencies offering ESG evaluations and ratings. Moody’s, S&P, and Fitch are among the hundreds of organizations that review data points like energy usage and environmental impact, workplace safety, board diversity and independence, and ethical governance. These analysts look at a combination of publicly available information and voluntary disclosures to determine their ratings.
In essence, the analysts measure a company’s actions, while the Perception-Based ESG Score measures, well, the public’s perception. Comparing the two scores can reveal a blind spot that can help guide ESG communications campaigns.
A company that’s viewed well privately by analysts but suffers from a low public perception may be undertaking the right sustainability actions but should focus on better promoting its ongoing efforts to the general public. Conversely, a company that the public believes to be transparent and respectful but has a low rating from analysts may, in fact, need to increase its actual ESG efforts before such failings come to light and the public begins to think negatively about the company.
Mind the gap
Taking care of customers, employees, suppliers, and the community at large is an investment that can reap significant rewards in the form of loyal customers, satisfied employees, and bullish investors. But these efforts are only effective if stakeholders are aware of them, and there are plenty of ways that companies can improve their public reputation with both the general public and the investor community.
A company that’s making honest ESG efforts should rightfully show them off. Many companies already are. For example, Verizon issues an annual sustainability report that details its ongoing efforts as well as ambitious goals—like going carbon-neutral by 2035. Insurer Aflac, known for its humorous marketing campaigns, shares its ESG efforts in a colorful digital report. AI pioneer Nuance’s 2020 ESG Report not only details its ongoing efforts, but also highlights its efforts to support health care workers during the COVID-19 pandemic.
Independent ratings agencies can offer the sort of validation that companies want to trumpet in their communications. And it may be useful to identify suitable benchmarks, such as how a company compares to others within an individual industry or to broader efforts like the United Nations Sustainable Development Goals. Stakeholder perception is an important piece of this reporting, so it’s critical to know where you stand.
When companies are doing the right things, they should be sure to publicize them widely and make sure the message is getting across to the right audiences. Then they can manage their perception and gauge the impact it has on stakeholders by tracking their Perception-Based ESG Score. Having that data at your fingertips will help ensure that stakeholders see you not just as a great company, but as a company that does great things, too.
Do you know your Perception-Based ESG Score? Request a demo of the RepTrak Platform and learn where you stand so you can close the gap.
Kasper Ulf Nielsen Chief Strategy Officer The RepTrak Company