Risk Management Overtakes ESG And DEI In 2024

In George Orwell’s dystopian novel, 1984, the rulers of Oceania, a totalitarian state, enforce a language of simplified grammar and limited vocabulary meant to limit a person’s ability for critical thinking. In Orwell’s Newspeak, complex thoughts are reduced to simple terms and new definitions of words are created to suit political agendas.

During the past five years, certain concepts and phrases such as Environmental, Social, Governance (ESG) and Diversity, Equity, and Inclusion (DEI) have risen exponentially with corporate and nonprofit leaders, while others, like Social Responsibility, Philanthropy, and Citizenship have faded from the management lexicon. With an U.S. Presidential election year in full swing, expect to see a reversal of fortune for some of these “social” labels, and the creation (or resurrection) of new, and perhaps less controversial, substitutes. In fact, watch for many of these ideas to be subsumed under the umbrella of Risk Management.

Here are three trends worth watching in 2024:

The rise of Corporate Citizenship. Originally advanced by institutional investors and now generally accepted by many corporate and government leaders, ESG has become a hot button issue and a favorite punching bag of the conservative academic and political right. While concepts such as good governance practices, fair treatment of employees, and a responsibility to the quality of life in communities are generally favored by politicians and professors of all stripes, other aspects of ESG such as fighting climate change, promoting social justice, and equal hiring and promotion practices have taken on political connotations and risks that are causing many companies and institutions to change the way that they talk about these issues and practices. Expect to see a rise in more traditional terms like Corporate Citizenship, Corporate Responsibility (without the “Social” as in Corporate Social Responsibility), and Corporate Philanthropy as less controversial and polarizing terms while these programs and priorities remain largely the same.

The rise of Wellness and Belonging. Similarly, DEI programs, which have seen exponential growth in recent years, are under attack as un-American, ineffective, and discriminatory by a growing chorus of politicians, academics, and think tank leaders, and are now threatening the reputations and sales of some companies that made huge commitments to these efforts after the murder of George Floyd in 2020. While corporate leaders have signaled that they are not cutting back on these efforts, which remain critical to their businesses, expect to see a rise in efforts to promote Employee Wellness, Belonging and Mental Health as ways of ensuring that all current and future employees feel safe, fairly treated, and valued in the workplace without touting programs centered around race, gender, or social standing.

The rise of Risk Management. Risk management, or the process by which companies and institutions identify, evaluate, and mitigate their exposure to potential losses or liabilities, has been a noncontroversial aspect of corporate governance for as long as businesses have existed, and more emphasis continues to be placed here by corporate boards and leaders. While regulatory and judicial bodies have evolved their thinking about what constitutes a “material risk,” (those risks that need to be disclosed to investors and the public), the basic concept of identifying vulnerabilities and taking action to avoid or contain those risks is a basic tenet of good business practice and critical to the survival and growth of all enterprises. Arguably, corporate efforts to identify and mitigate risks associated with climate change, changing demographics, quality of life issues in communities, and workplace policies and practices are all essential and generally accepted as important priorities for institutional leaders and will remain so. Expect to see more instances where these ESG and DEI strategies are framed as managing risks associated with doing business rather than as free-standing programs and priorities.

George Orwell once wrote, “when the general atmosphere is bad, language must suffer.” It remains to be seen whether the current polarized environment, especially in an election year, brings changes to corporate language or programs or both. Stay tuned.