Does Reluctance to Choose Sides in Geopolitical Conflicts Undermine ESG Credibility?

Author: Mushtaq Dost, FICA

In the complex landscape of corporate responsibility, the ESG (Environmental, Social, and Governance) movement stands as a beacon, guiding companies towards more ethical, sustainable, and socially conscious practices. However, a pressing question has emerged in the realm of ESG: when companies face the tumultuous waters of geopolitical conflicts, such as the enduring Israel-Palestine issue, does their reluctance to take a side diminish the credibility of their ESG commitments? This question merits a closer examination.

Firstly, ESG emphasizes the paramount importance of social responsibility, which encompasses advocating for human rights and maintaining ethical practices. When companies skirt around taking a definitive stance on significant human rights concerns, such as those present in conflicts like Israel-Palestine, this avoidance can be perceived as a glaring inconsistency with the social pillar of ESG. Such inconsistency has the potential to seriously undermine the integrity and authenticity of a company's ESG commitments.

Moreover, the phenomenon of selective activism often comes into play, where companies may choose to actively support certain causes while remaining conspicuously silent on others. This selective approach can be viewed as opportunistic, driven more by public relations considerations than a genuine commitment to ESG principles. When companies are vocal about some issues but conspicuously avoid others, such as the Israel-Palestine conflict, it can create an impression of a double standard, potentially eroding the authenticity of their ESG efforts.

Another crucial aspect to consider is the impact on stakeholder trust. In today's increasingly conscious market, stakeholders, including consumers and investors, expect companies to demonstrate a genuine commitment to social and ethical issues. A company's silence or neutrality on significant geopolitical conflicts can lead to a loss of trust and credibility among these stakeholders, who may then view the company's ESG initiatives as superficial or insincere.

Furthermore, by avoiding taking a clear position on contentious issues, companies can be seen as neglecting the 'social' aspect of ESG. This neglect becomes particularly problematic when a company's operations or supply chains are directly or indirectly linked to regions affected by such conflicts. Inaction or neutrality in these scenarios can be perceived as a tacit endorsement of the status quo, which may involve human rights abuses or social injustices.

Critics also argue that when companies use ESG as a marketing tool rather than as a genuine framework for responsible business practices, it diminishes the value of the movement. Avoiding complex issues like the Israel-Palestine conflict can reinforce the perception that companies are only interested in ESG as far as it serves their branding, rather than as a true commitment to making positive social and environmental impacts.

Lastly, the 'governance' aspect of ESG includes ethical decision-making and transparency. When companies avoid taking a stand on critical issues, it raises questions about their decision-making processes and transparency. This can lead to skepticism about whether their commitment to good governance is only superficial.

In conclusion, while there are valid reasons for companies to approach geopolitical issues cautiously, avoiding taking a stance on conflicts like the Israel-Palestine situation can undermine the ESG movement by creating perceptions of inconsistency, selective activism, loss of stakeholder trust, and superficial commitment to ethical and social responsibilities. It is a complex issue that warrants thoughtful consideration and dialogue.

Author: Mushtaq Dost, FICA is a member of NJ Global Consulting Inc.’s Advisory Board. He is a governance, risk and compliance expert focused on ESG and innovation. With a Masters in Investment Analysis and a Masters in Corporate Compliance, he brings over two decades of experience from the private equity and venture capital industry. He is also a Managing Partner with BDA International based in the U.S. and operating across North America, and Founder of Trafford Consulting, based in Spain and operating across Europe.