Does ESG Compliance Prove That Your Company Is Sustainable?

Nov 28, 2022

Dr. Gary C. Smith, Texas A&M University 

Not really. For centuries, companies survived if they were profitable, and failed if they were not. It used to be that a company could decide to use a marketing claim about environmental impact or social justice to set its products apart.  

In 2022, activists (and perhaps the government) want to pick winners and losers by making companies comply with their definitions of what is or is not “sustainable”. For example, Benefit Corporation™, an auditing company that instructs more than 10,000 companies on complying with ESG mandates, advises companies to discard the concept of “shareholder primacy” (which prioritizes profits even when derived from behaviors that create inequality, environmental damage, and social fragmentation) and use “stakeholder governance” (which prioritizes working for a healthier planet and a more inclusive economy).1 

What is ESG? 

ESG means Governance (i.e., control – via the company’s business policy) over Environmental and Social issues. To meet the ESG standard, a company must attain certain metrics for environmental policies (to minimize changes in the climate and the environment) and for social policies (to assure social justice for humans and food animals). ESG equates to a company’s sustainability.2 

Polls Say Consumers Support Sustainability 

Several consumer polls and surveys support the importance of sustainability to shoppers. Among the conclusions they reach are the following:  

  • 84% say food brands don’t meet consumers’ ESG expectations3  
  • 51% say they have changed their purchasing choices within the past year to make a difference on economic, social, environmental, or political issues4  
  • Consumers will continue to demand that companies focus more on sustainability, with human rights, fair wages, and gender equality of particular interest5 
  • 68% said they will pay more for sustainable foods6  
  • When asked why they prefer sustainable brands, 17% said to improve the environment, 16% said social signaling, 11% said to reduce carbon footprint, 9% said to reduce production waste, and 8% said to improve animal welfare6
  • Consumers want to know how a company is working toward improving its practices to better sustain the life of the planet and Earth’s people plus how it’s going to benefit them personally7 

However, Purdue University Poll Results Disagree… 

Conversely, the only consumer survey I have found, and the only one I consider unbiased, was conducted by a completely independent party – Purdue University in its “Sustainable Food Purchasing Index” – and which says, “Of the six attributes that Americans value when making food-purchasing decisions, consumers most value the taste of their food while least valuing the environmental impact and social responsibility of their food.”8  

Marketers Use Sustainability to Distinguish Their Brands 

Nevertheless, when sustainability first appeared on the horizon, food marketers saw it as a potential brand differentiator – using “sustainable” on the label like some companies use “organic”, “natural”, “non-GMO”, and “gluten-free” to service niche markets.  

At that time, some privately owned and some publicly traded manufacturers, supermarket chains, and food-service operators touted their sustainability because at least some participants in the supply chain wanted it – and, of those who wanted it, some expected a paper (or electronic) trail that proved it.9  

Then, in 2015, large companies that sell shares of their firm on the stock exchange (i.e., that are “publicly traded”), began to be forced by stockbrokers and money managers to provide evidence of their company’s sustainability efforts.10 So, what do companies include, and what evidence do they provide, to make their ESG claims believable? 

How do Companies Support their ESG Claims?  

Evidence of “giving-back” actions as part of social justice include donations of money or food… 

  • To those affected by severe storms, wildfires, tornadoes, or hurricanes (Hormel™, Pilgrim’s Pride™, Nolan Ryan Brands™, Tyson™, Cargill™, Kroger™) 
  • In support of education efforts at public schools and universities (JBS-USA™, Perdue Farms™, Smithfield™, Wayne Farms™) 
  • To directly support lineworkers, their families, and their communities affected by the COVID-19 pandemic (Tyson™, JBS-SA™, Perdue Farms™, JBS-USA™, Smithfield™, Hormel™, Cargill™, Pilgrim’s Pride™)11-16 

Some food companies pursue environmental and social issues and causes by “pledging” the following: 

  • Reaching zero carbon emissions by 2015 (Mondalez™) 
  • Replenishing more water than the company uses by 2030 (Pepsico™) 
  • Promoting conservation of the Amazon rainforest (JBS-SA™, Ahold™, Lidl™, Carrefour™) 
  • Switching to recyclable or compostable packaging by 2025 (Saputo™, Kellogg™) 
  • Slashing their food loss and waste 50% by 2030 (Wegmans™, Kroger™, Campbell Soup™, Aramark™, Amazon™, Walmart™, Pepsico™, Smithfield™) 
  • Achieving 25% representation of racially diverse talent at the managerial level by 2025 (Kellogg™) 
  • Being among the Top 300 female-friendly employers in the world (Hormel™) 
  • Hiring a “Chief People Officer” to assure diversity, equity, and inclusion with regard to race, gender, transgender, and LGBTQ persons (Grimmway Farms™, Danone™, Harris Woolf Almonds™)17-26 

Companies seeking oversight and validation of elements in their ESG Plan use groups like the following: 

  • Meijer™ (a supermarket chain) seeks validation by one or more of 38 third-party auditing companies (e.g., Where Food Comes From®, Rainforest Alliance Certification Program®)27  
  • Business Benchmark On Animal Welfare® is used by investors to validate animal care and handling claims28  
  • Appian Workplace Safety® validates programs for COVID-19 patients to safely return to work in packing plants29  
  • Benefit Corporation™, via B Lab®, advises more that 10,000 publicly traded companies on matters of social justice as they seek to comply with ESG mandates and qualify as “B Corp Certified”30  
  • J.P. Morgan Chase (an investment firm) established “Food Agriculture Sustainability Transition” (FAST®), which suggests that investors preferentially seek shares of those businesses that comply with ESG dictates31  
  • More than 25% of Fortune 500® companies are on the “carbon credits/carbon offsets” bandwagon, an action intended to compensate for the emission of carbon dioxide into the atmosphere as a result of industrial or other human activity32  
  • Genstar Capital™ (an investment firm) owns “Institutional Shareholder Services” (ISS®), an advisory firm that specializes in corporate ESG initiatives33  
  • Fairtrade America®, a third-party certification company, specializes in gender equality, fair wages, and human rights5 

How do Companies Design Their ESG Plans? 

Four examples of how companies design their ESG plans include the following:  

  • Kellogg™ says its “Better Days ESG” strategy involves working with its partners (Consumer Goods Forum® and Science-Based Targets Initiative®) to seek end-to-end supply-chain solutions for well-being, hunger relief, and climate resiliency. They are presently making commitments and pledging improvements using percent changes by certain future dates.18,20  
  • To sell almonds to Danone™, almond growers and processors must comply with these ESG standards:  
    • California Almond Sustainability Program – for water management, pollinator health, and financial planning 
    • Bee-Friendly Farming Certification – for protection and preservation of pollinator health 
    • B Corp Certification – for corporate governance, community engagement, customer relationships, employee engagement, and environmental impact 
  • Eco-Practices – a risk-management program that measures sustainability throughout the supply chain24  
  • Grimmway Farms™ (a fruit and vegetable grower/processor), using its “Responsible Growth for a Healthier World” strategy, released its ESG report. It consisted of measurements of the company’s impact on carbon mitigation, soil health, water conservation, biodiversity, energy conservation, waste reduction, food safety, employee health and diversity, and social equity.21  
  • Smithfield Foods’™ ESG strategy is “To produce good food, do good work, and be good stewards of its animals and the environment.” It consists of seven key pillars of concern about the environment, food waste, animal welfare, food safety, worker wellness, food insecurity, company culture, community vitality, and high-quality products.34 

One-Third of US Assets are Invested Using “Sustainability Strategies” 

By November 2020, the “Forum for Sustainable and Responsible Investment” (USSIF) reported that $17.1 trillion (one-third of total US assets under professional management) were being invested upon using “sustainability investment strategies”.10 Some observers are critical of publicly traded corporations: (a) being badgered by “leftists” and/or “socialistic” stockbrokers to “make the world a better place” by complying with the dictates of ESG;2 (b) being forced to use ESG criteria to address climate change, sustainable natural resources, regenerative agriculture, labor diversity, and political spending – all “woke” hot topics;35 and (c) for folding to “activist” shareholder pressure and “woke” philosophies to change the way they do business.36 

Activist shareholders want to pick “winners” and “losers” by making companies comply with their personal definitions of what is, or is not, sustainable. In 2021, 467 shareholder resolutions on ESG were filed.35 Included were the following:  

  • Demands that Hormel™ assess the effects on public health costs of having antibiotic residues in its meat37  
  • Concerns about Big Food (e.g., Coca Cola™, Bayer™, Dannon™, Kellogg™, General Mills™) using the International Life Science Institute® to consult them regarding ESG dictates38  
  • Demands that Kroger™ nominate two persons to its Board of Directors who support adding “animal welfare” and “fair wages” to its ESG policy39  
  • Activist investors who do not want the company to finance fossil fuels or animal agriculture because of their association with climate change40 

ESG Strategies Often Contain Disparate Issues 

The Center For Food Integrity identifies more than 250 attributes in the ESG strategies of food companies; no company can effectively manage 250 disparate issues.41  

Activist investors and stockbrokers want to run corporate America according to their individual ESG goals – not the good of the average shareholder.40 ESG strategies must balance the input of multiple stakeholders (frequently with competing interests) with the business objectives of the company.42  

Companies that rate high on the ESG scale have not necessarily been good financial performers; some of the specific changes made by companies in order to upgrade their ESG “socially responsible index” ratings backfire, largely because those who decide what is “woke” know essentially nothing about agricultural practices.43 The problem with forcing companies to abide with ESG constraints is that it forces money managers to invest, or not invest, in certain shares/stocks for political reasons instead of fiduciary reasons – which could be a disservice to the investors.44 

What Motivates Corporations to Adopt ESG Strategies? 

Corporate motivation to follow ESG ideology is fueled by its appeal to environmentally conscious investors, social-justice advocates, and those trying to take pre-emptive ESG action ahead of state and federal governance requiring regulatory compliance.32 ESG advocates in California have… 

  • Weaponized their Attorney General to use ESG in planning/zoning decisions 
  • Passed a law forcing 700 publicly traded corporations to leave one seat on their Board of Directors open for LGBTQ individuals and minorities 
  • Passed a law requiring that all companies have three women on their Board of Directors45,46  

Government Pressure Sometimes Forces ESG Compliance 

The “hammers” that activists and the federal government already use on farmers/ranchers to increase their power over use of water and land (e.g., Waters of the United States, Endangered Species Act) are now being augmented to force those that supply raw materials or finished goods to publicly traded companies to comply with ESG mandates.40 Under the Biden Administration, the Securities and Exchange Commission (SEC) is rigidly supporting ESG mandates; the agency has sided with the Humane Society of the United States (HSUS) over Wendy’s™ in a dispute over an animal-welfare issue.47  

SEC has yielded to US President Joe Biden’s desire to continue his “war on fossil fuels”.48 BlackRock™, one of the three largest US public-company money managers plus “progressive democratic” investors have convinced SEC to advance a proposed rule requiring public companies to disclose climate risks.48 This regulatory action is partially a result of the fact that President Biden’s effort to address “global warming” in legislation has stalled in congress.49 SEC formally put forth a 534-page proposal that would force publicly traded companies to disclose the following:  

  • GHG emissions from both the company’s supply chain as well as its customers  
  • Information about climate-related risks that are reasonably likely to have a material impact on their business, result of operations, or financial conditions 
  • Certain climate-related financial-statement metrics49,50,51 

Some Companies are Resisting ESG Mandates  

But some are fighting back. The Robinson Bours family holds 73% of the shares of Bachoco™ and has decided to delist the company from the stock exchange by purchasing the remaining 27% of the shares to avoid having to conform to the SEC’s intent to require that the company comply with ESG mandates.52  

Some ESG opponents are pushing legislation at the state level that would dictate where investment firms must put their states’ money. Texas passed a law to keep state funds away from investment firms that divest from fossil fuels.44 Nebraska state senators are attempting to pull state funds from Genstar Capital™, an investment firm that is “anti-cattle” because of bovine GHG emissions.33  

Corporate Citizen Project, an independent think tank that opposes corporate ESG initiatives, is advising the Nebraska senators on the Genstar Capital™ case. US Senator Dan Sullivan (R-AK) believes the US Congress should pass legislation forbidding investment firms from using ESG as a cudgel to affect traders’ buying/selling of shares.53  

More than 120 agricultural groups are asking SEC to delay codifying its proposed rule to review the costs and liabilities for farmers/ranchers if they are forced to report personal information and business-related data.54  

Kim Stackhouse-Lawson (Colorado State University) says, “Sustainability, as a concept, has evolved into a science that works on eliminating risk from a business supply chain – A CORPORATE MITIGATION STRATEGY.”55 And, the conversation around “sustainability” just shifted to “risk” being “loss of reputation” and “access to capital”. European-based banks and US investment firms are seeking federal regulation to not invest in high greenhouse-gas-emitting industries, especially animal agriculture.55

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