ESG backlash dominated headlines in 2023, but it's still 'quietly' reshaping industries behind the scenes

It represents woke capitalism. It propels a for-profit nanny state.

Yet for all the political haymaking over environmental, social, and governance efforts — such as Republicans throughout the country pushing anti-ESG legislation and threatening to pull state investments from companies that follow ESG principles — few companies seem to be walking away from their efforts entirely.

Many appear to be talking less about their ESG initiatives, though. And job cuts could imperil progress on diversifying workplaces — pledges that some skeptics saw as performative gestures following the murder of George Floyd in 2020.

Despite challenges, much of the work continues because many companies across industries see it as good for business, ESG experts told Business Insider. In particular, they said, it's important for attracting and keeping younger workers.

"The work is quietly going on," R. Mukund, the CEO of Benchmark Gensuite, which makes software for ESG reporting, told BI.

In fashion, Eileen Fisher is pushing the label she started nearly 40 years ago to reduce its environmental impact by using fewer materials. The company takes back old clothes to be upcycled. Fisher has even called for consumers to buy fewer clothes. She told BI she hopes education can help shoppers realize they don't need as many pieces as they might think. Fisher said the company's environmental efforts had helped attract workers.

At the financial giant JPMorgan Chase, Vince Toye leads two divisions focused on affordable housing. In 2022, the bank financed $12 billion in deals to make it easier for people to obtain housing. Toye told BI he's also working on efforts to help renters who make too much to get government help but earn too little to afford market-rate rents.

The work at Eileen Fisher and JPMorgan indicates ESG work is ongoing even as some businesses talk about it less often than they once did. Companies generally have been quieter about their ESG work on quarterly earnings calls; data compiled by FactSet suggests the chatter about ESG peaked with fourth-quarter results in 2021.

Mukund said many organizations have too much invested in their ESG programs and believe they'll help pull in workers and customers.

"You can't simply wish it away," he said. "No demagoguing is going to make it go away."

But, broadly, does anyone care? ESG doesn't necessarily draw widespread attention. In a Gallup poll conducted in April, only 37% of Americans reported being "very familiar" or "somewhat familiar" with the practice of using ESG principles to guide purchasing or investing decisions. The share who said the same in 2021 was 36%.

Gen Zers are much more "decisive and discerning" than older generations about where they want to work, Spadafor said. "It's not just getting the job, but it's getting the job in the right place where the values of the company are consistent with their values," she added.

Spadafor said that according to her research, many Gen Zers are choosing to apply to employers only after digging into an organization's stances on environmental sustainability and social issues. "They will look at the diversity in the workplace, and they will decide to apply accordingly," she said. "This generation is doing it more than previous generations.

"I know when I was looking for jobs, I wasn't looking for that. I was thinking, here's my skill set, you know, where do I want to work?" she said. "That's not the calculus that the younger job applicants are using."

Spadafor said a focus on the social part of ESG can help companies improve their cultures and hang on to these workers during an "ongoing war for talent."

Mukund said the low unemployment rate in the US and the pressures from inflation — like higher wages — that make going out to find workers difficult can push companies to look for ways to incorporate ESG ideas and diversify their workforces. He said it's causing leaders to say, "We need to implement these programs not for the sake of delivering a metric but because it's critical to business."

"There was this moment where I realized that I had to actually say, 'We really want to be a 100% sustainable company,'" she said. But because she knew that wasn't possible, she hesitated, even as her staff grew more excited. "They were all saying, 'Let's do it. Let's make it the goal,'" she said. Fisher, 73, said she pushed aside her initial doubts and agreed they had to try.

The company has taken steps to simplify its operations and mimic the simple designs of the clothing line Fisher started in 1984. Five years ago the brand was using 1,000 types of fabric; now that's down to 200, Fisher said. They're the ones the designers love, she said, and that are most sustainable.

Fisher also wants her customers to buy fewer clothes. It's a view Fisher shares with her company's CEO, Lisa Williams, whom Fisher brought on in 2022 from Patagonia.

Fisher acknowledged the position is tough for a leader of a fashion label to maintain. "I look at the sales every week," she said. "I want to know how are these products being received — what are they liking."

Fisher said that buying less might mean helping customers understand the dozen foundational pieces of the season or the year and helping them find ways to mix and match garments.

The company still has a long way to go, Fisher said, adding that she and her team feel compelled to do what they can. One focus is on moving from organic cotton and wool to versions of those fabrics produced through regenerative agriculture, a set of practices designed to boost soil health.

A big part of Toye's work now is focusing on so-called workforce housing. It's aimed at middle-income workers — the teachers, municipal workers, nurses, retail clerks, and others who have essential but not necessarily high-paying jobs. Often it's easier to bankroll market-rate rentals or low-income affordable housing than this middle layer, according to Toye.

In 2022, Toye started JPMorgan's first capital-solutions business focused on workforce housing. He said more employers, recognizing the severity of the housing crunch in the US, are looking for ways to help house their workers because insufficient housing — and punishing commutes — can damage morale, hurt productivity, and increase turnover.

Companies that opt to pump money into middle-income housing can get a first crack at reserving some of the units for their workers. Employers might also be able to negotiate a master lease for some units and then rent them to their workers, Toye said.

For developers, this can help get deals funded and across the finish line. In addition to funding from employers, building a workforce housing unit might require a bank loan, local tax credits, abatements, land grants, and money from the developer. Toye said this is where JPMorgan Chase's connections can come in handy, allowing him to work with professionals across the bank to find a fix.

"There's no road map, and every deal's different," he said.

Mukund said companies that have already set up reporting structures to gather information on ESG data are unlikely to stop, especially as some jurisdictions like the European Union will require reporting on some metrics. Already, there's growing interest in the so-called "integrated reporting" framework, which pulls together data on a company's strategy, governance, and performance.

"The grooves are laid," he said. "What you could do is to stop looking at it or hearing about it or doing the things to improve upon your numbers, but the numbers are going to be there."

Mukund said that working on ESG measures is in most companies' best interest because many, like his own company, continue to have trouble filling all their open roles. "We all have workforce pressures," he said. "Knowledge workers — they have a lot of choices."