Written by Josh Jacobson

Last month, our company released a new report on a continuing theme – the role of social impact in the private sector. Profit & Purpose: The ESG Addendum summarizes our findings following 18+ months of discussions and engagement with leaders in the private sector. It follows a lengthy report we published in 2021 on what we are calling “the intersection of social good.”

Next Stage has been on a journey to understand how the private sector engages in efforts to advance social causes for the past four years. In both reports, we profile our thinking on what is moving companies to be more focused on their citizenship efforts. We think it is more than just a trendline – it is a demarcation point.

Last year, we shifted our language. We previously settled on the term “social good” as phrasing for what we saw as a growing focus by companies to address social challenges. And then, seemingly overnight, the initialism ESG came to life and we adopted the terminology. Our new report focuses on ‘External S’ – the ways we think companies will be held accountable in the future for contributing to positive social outcomes that are outside of their direct control.

So, it made sense to call our new report The ESG Addendum. The initialism only showed up a handful of times in our original report, and now we believe it is the essential, disruptive framework that is at the heart of a paradigm shift. We not only joined the ESG bandwagon, but we also aimed to become one of its chief conductors through the lens of External S.

But first, we have to contend with what David Hassekiel called “a distraction” in his recent piece for Forbes, “ESG Should Bring Us Together Not Tear Us Apart.” In it, he references our report and the loaded phrase the initialism has become.

Are you really still calling it ESG?

The signs of hesitation regarding ESG were starting to show in the months leading up to our report’s release. The concept of ‘woke corporations’ was nothing new – it showed up as a trend of politicization that we’ve chronicled all the way along. But something changed in early Q1 2023. Much the way Critical Race Theory (CRT) had been hijacked to mean something different than was intended, so too has ESG been redefined – like it or not.

A conversation over coffee earlier this year was telling. I met with a social impact leader who described a tumultuous number of days leading up to what a company had branded as ‘ESG Day.’ Executives worried that the term had become too divisive and efforts were made to soften exposure. Banners emblazoned with the initials were quietly replaced and talking points were reframed.

Now, imagine having the initials in your department name or your title! Such is the case for many professionals across the country who have been a part of a series of change management efforts to reposition how environmental, social and governance strategies are formed and metrics are tracked.

Our conversations suggest corporate leaders are unsure what to do, which is where we also found ourselves a few weeks back, debating whether to move forward with naming our report “The ESG Addendum.”

In the end, we decided to stick with it. Why?

“Because it doesn’t matter what we call it. It’s the underlying change in behavior that matters.”

Coming to grips with the new reality

As we explored how social impact fits into the future of ESG, we started with an audience we know well – corporate social responsibility executives. But perhaps not surprisingly, our journey arrived in a different place altogether: the corporate general counsel’s office.

To date, the ESG movement has been predominantly viewed as a risk topic for companies, treated as another form of regulation to navigate. ESG evaluation is elective, but because of the stakes involved, it is typically reported to someone with a law degree.

That arrangement makes for some strange bedfellows. In companies across the country, social impact strategy is being filtered through a lens of risk mitigation and compliance. We see this as an essential challenge for the private sector – until ESG starts being treated as an opportunity as opposed to risk, flat-footed companies will fall further behind.

Because no matter what you call it, the underlying trendlines are not changing:

  • Generational change continues to disrupt. You thought Millennials were disruptive? Allow us to introduce you to Generation Z, which the OliverWyman Forum recently described as “humankind’s best, and greatest, hope in the existential battles against global warming, inequality, and political and social unrest.” If your company is wrestling with whether it can possibly bow out of the whole social impact thing and take a wait-and-see – you run a significant risk of being left behind.
  • The workforce shortage is real. We’ve been privy to some pretty scary discussions inside boardrooms about the looming threat of a significant labor shortage, which we outlined late last year. Recent preemptive layoffs ahead of a predicted recession are only temporary – the long-term trendline is pretty bleak, creating what we called “an existential threat to capitalism.” Key to workforce retention and acquisition strategies? Values alignment in the workplace. We’ve seen companies reframe the intended audience for their impact reports to include their current and future workforce.
  • Socially responsible investing is not a temporary trend. As covered late last year by Forbes, ESG investing is expected to roughly double globally in the next three years, growing to 21.5% of total assets under management. In a few years, $1 out of every $5 invested will be in ESG vehicles. Is it a perfect system? Of course not, but that isn’t stopping people – particularly young people at the beginning of their investment journey – from choosing ESG funds as a part of their company’s 401k offerings.

For every Sears, there is an Amazon

In our report, we look to the past for inspiration:

“We liken the ESG paradigm shift to others that have come before it: the Industrial Revolution, the rise of digital technology, the advent of the internet and the emergence of social media. Each of these advancements challenged leading institutions to make a choice – to either fiercely protect the status quo that had worked for so many years or to make changes to stay contemporary to a new reality. For every Sears that refused to make those changes fast enough, there is an Amazon, a new company that seeks to harness the paradigm shift into a powerful expression.”

The real question isn’t what we should call social impact initiatives, but rather what we should do to embrace them, channel them and make it work for your organization.

In the months to come, that is exactly what we will be covering in this newsletter – Moving the Needle: Impact for Business. Each month, we will highlight innovative case studies, exemplary impact reporting and the latest on social impact metrics, employee engagement strategies and cause marketing. Subscribe today and stay in the know.

And that’s not all – we are so much more than researchers and prognosticators. Your company can hire us! The Next Stage team can support the development of new social strategies, provide project management support and even lead the design of your next impact report.

We stand ready to help your company bring its social responsibility strategies into a contemporary frame. Want to learn more? Reach out and let’s talk.