Florida Governor Ron DeSantis has ended nearly six decades of perks for Disney, stressing that he will not allow “a woke corporation based in California to run our state.” A Texas law bans municipalities from doing business with financial institutions that have ESG policies against fossil fuels and firearms.
On the other side of the ESG debate, Illinois now requires entities managing public funds to implement policies outlining how they consider ESG factors and Maryland requires the state retirement and pension board to consider climate risks in its investment policy and investment portfolio.
You’ve likely noticed the ESG (environmental, social, governance) movement has been in the news a lot of late and much of that coverage has been around pushback against it.
ESG, unfortunately but perhaps unsurprisingly, has become a polarizing issue. There are advocates both for and against ESG on the investor/corporate side, in state legislatures, and, of course, among the general public. Much of what’s currently happening on both sides is related to fossil fuels and other industries linked to climate risk, but race, gender and other social issues are also driving the ESG discussion.
Although the idea of building ESG into an organization’s makeup isn’t new—the roots of the ESG movement go back to concerns around corporate social responsibility that first surfaced in the 1950s—it’s only in the last few decades that governments, agencies and companies have more consistently embraced this framework.
ESG has become increasingly important to credit unions because key stakeholders — including regulators, policymakers, members and employees — are paying attention to it. It’s also top of mind because there’s a clearer understanding of ESG’s risks and rewards. Consider everything that’s happened over the last few years—including the pandemic, social unrest, and the increasing intensity of climate change—and it’s no surprise that a growing number of people and organizations are making ESG a priority.
Embracing each element of ESG can benefit both credit unions and the communities they serve.
For instance, environmental sustainability has become increasingly important to consumers and employees of all ages, but especially Millennials and Gen Z, who will soon make up the majority of the workforce. At a time when credit unions of all asset sizes and in any location can struggle to attract and retain employees, having a reputation for sustainability can be invaluable.
Likewise, being known as an employer who prioritizes diversity, equity and inclusion (DEI) and has a reputation for strong employee support (with things like professional development, fair pay, etc.) can also help you attract and retain good employees and boost your reputation in the community. And providing fast turn-around on loans in the middle of a community crisis (for instance, a flood, hurricane or wildfire) positions you as a caring partner and helps members achieve financial well-being. A reputation for good governance and financial integrity will attract both a strong board and members looking for a financial partner they can trust. And building ESG into your metrics could uncover risks—whether financial, reputational or other—you wouldn’t have thought of otherwise.
Plus, it never hurts to be prepared. Although U.S. credit unions don’t currently need to meet reporting requirements around ESG at the federal level, as this article from Credit Union Times reports, that could be changing. States like New York and California already ask credit unions for environmental metrics, and what’s happening in the European Union (EU) is often a bellwether for U.S. regulations. According to Harvard Law, EU laws as of late 2022 “…require ESG reporting on a level never seen before.”
There are a number of reasons why what would appear to be a fundamental common good—paying more attention to the environment, social issues and governance—has run into so much resistance in recent years.
One is the increasing divisions in our country. By their very substance, ESG-related issues inflame passions on both sides. According to this Forbes article, there’s strong evidence of big money working behind the scenes to influence governmental regulations around ESG and an interviewee in the article points out that organizations who do and don’t integrate ESG are “…getting yelled at from both sides.” It’s becoming a damned if you do, damned if you don’t scenario.
Another is the reality that not every organization that claims to embrace improved ESG standards is really doing so. “Greenwashing” is all too common. In a 2022 Harris Poll for Google Cloud, 68% of responding U.S. businesses admitted to overstating their sustainability efforts. There are no standards an organization has to comply with to make an ESG claim, which can lead the public to question the validity of any effort.
Last but not least: the perceived financial costs of embracing ESG. In pure dollars and cents measures, ESG will drive higher short-term costs. But as this Harvard Business Review article highlights, when an organization uses a non-traditional paradigm that includes things like carbon, living wages and social infrastructure and takes a longer-term approach to costs and benefits, ESG tends to stack up quite nicely.
Jack Lawson, CEO of Clearwater Credit Union in Missoula, Montana, echoed this sentiment in a recent episode of our podcast, The Remarkable Credit Union, that “while [ESG work] might take a little more time and money to get right up front, it pays dividends long term. Once it’s embedded, once it’s rolling, once we’ve figured this stuff out… our members are joining us for the right reasons, they’re building deeper relationships with us, they’re sticking around. We’re getting the right people working here, they’re really aligned with the mission and the values, and those things ultimately pay off in spades.”
Plus, a recent report from Ceres and Filene Research Institute, The Changing Climate for Credit Unions (cited here), found more than 60% of all credit unions, or at least $1.2 trillion in credit union assets, are at physical risk from climate change, which will cost us all money in the long run.
It will likely come as no surprise that I believe in the importance of embracing ESG. Our marketing agency, PixelSpoke, is a proud B Corp, which means we balance purpose and profit by answering to a triple bottom line, measuring social and environmental performance, public transparency, and legal accountability. However, this doesn’t mean that we embrace a one-size-fits-all model to measuring impact; in fact, we think the greatest success will always come from organizations that go beyond the ESG label and tailor it to their local context, culture, and purpose.
The issues the ESG movement strives to address are too critical for us to stay at this zero-sum standoff, and it’s imperative for businesses to serve as forces for good by proactively addressing the challenges we collectively face.
Credit unions already have a great foundation to build on — their commitment to community and cooperative ownership structure naturally align with ESG principles. But given the level of discord and the cynicism around both the value of ESG and whether organizations are truly walking their ESG talk, credit union marketers also have their work cut out for them.
Our Definitive Guide to Credit Union Cause Marketing offers some helpful insights about how to navigate the potential hazards of communicating around your ESG efforts. (Also see these articles from NewNarrative and Forbes for other great tips.)
ESG marketing is an unruly, evolving and powerful force—and though it doesn’t come without risks, it also comes with many potential rewards that I’d love to see credit unions continue to harness and leverage. There are opportunities to attract more Millennial and Gen Z members, to engage with members around issues they care about, to attract and retain talent, and to deepen your community impact in meaningful and measurable ways.
Just remember, the endgame isn’t effective ESG marketing. The endgame is impact and a better world for us all.
This article originally appeared on CUInsight.