As a highly contentious election year, 2024 stands to be as volatile and divisive as any period in recent memory. The following principles and guidance will help ensure people leaders are equipped and ready to support and engage with their teams through the potentially rocky period ahead.

Also check out our full Guidance for People Leaders, including worksheets and a checklist, for navigating this year.

Understand the Landscape

To understand the issues creating social division and key milestones that could serve as inflection points throughout the year, people leaders should take a quick scan of the news — from a balance of sources — every morning.

Be Accessible to the Team

To determine how employees are doing, people leaders should walk the halls or host 1:1 meetings with their teams, adopt an “open door” policy, encourage people to reach out when they need to talk, and practice active listening.

Stay Neutral

To remain balanced and refrain from bringing biases into workplace conversations, people leaders should pay attention to employees’ body language, ask how people are feeling while conversations are taking place and direct discussions accordingly.

Get Familiar with Policies and Helpful Resources

To socialize helpful resources to employees, people leaders should designate time to review and share their organization’s corporate values, code of conduct and relevant policies, and use these worksheets to guide their team’s ways of working.

Consider Situations that May Arise

To prepare for potential workplace disruptions, people leaders should consider the specific political and societal issues important to employees, as well as inflection points that may result in displays of emotion in the workplace.

Maintain Control of Conversations

To navigate discussions about politics or polarizing issues in the workplace, people leaders should reinforce that employees are expected to always treat each other with respect and that the workplace is a safe space where no one should feel marginalized or harassed, among other helpful reminders.

Appropriately Address Workplace Issues

To host productive conversations about employee behavior, people leaders should consult with HR before the conversation, seek to understand each person’s perspective and respectfully remove herself/himself from any conversation in which she/he feels threatened or unsafe.

Respond When the Team Needs Support

To determine how to address something that will upset one or more employees, people leaders should consider whether it is a topic appropriate for a team-wide discussion or better suited for 1:1 check-ins and, if needed, reference relevant employee benefits and programs that may be shared in those conversations.

Seek Additional Support

To effectively manage through what’s to come in 2024, people leaders should seek the input of peers they trust or colleagues in supporting functions, such as HR, Employee Communications, Legal and Labor Relations (if applicable).

Private equity as an asset class continues to boom, but this has brought with it added scrutiny, particularly on how firms are incorporating ESG and sustainability into their investing process. It has become a cliché to say that “ESG is in our firm’s DNA” but the PE business model lends itself particularly well to sustainable investing in a number of ways and businesses can communicate this better. In the current absence of uniform disclosure rules, firms that are transparent about their approach to ESG can stand apart in an increasingly difficult fundraising environment while setting an example in an industry that is associated with opacity.

The scene today

Assets under management in the PE industry totaled $2.7 trillion according to Preqin data in 2010 globally. Despite a marked drop in fundraising over the past two years, that figure has still mushroomed to $13.1 trillion as of June 30, 2023, with Asia accounting for nearly a third of that total. As a result, the stakeholders are proliferating, with investors such as private wealth and family offices growing, and demands for greater transparency, and even action on better distribution of profits increasing. The head of Calstrs, a major pension fund and PE Limited Partner (LP) issued a call for PE firms to “share the wealth” with the workers and communities of companies that they invest in.

Among those stakeholders, ESG is of ever-increasing importance when selecting a manager. A recent INSEAD survey showed that 90% of PE investors consider ESG as part of their investment process, with 77% citing it as a gauge for picking a manager.

Transparency is improving, but firms, particularly mid-size and smaller ones that have been hit hardest by the recent fundraising squeeze, can do much more to communicate their strategy and approach to sustainable investing.

Regulation is on its way

ESG regulation regarding disclosure is being developed in Europe and the United States in response in part to demand from investors and media. Examples include the proposed U.S. Securities and Exchange Commission Scope 3 emissions disclosure rule and the Corporate Sustainability Reporting Directive (CSRD) from the EU, which came into force in January.

The CSRD affects PE firms in Asia as several of their portfolio companies will be in the value chain of the EU companies covered in the directive. They will have to prepare detailed reports covering carbon emissions, workers’ rights and a raft of other measures. They also cover the LPs themselves. Reporting will be released in 2025, but in the meantime, firms will have to move fast to put in place the means to measure the data correctly.

The issue that firms face, and one that affects sustainable investing globally, is the lack of a uniform reporting structure. While that is being developed there are ways for firms to inform their LPs, their stakeholders and the employees of their portfolio companies how they are applying ESG to their investment process, without being mistaken for an impact fund.

ESG really is in the DNA

Private equity as a strategy has several advantages for advancing sustainability due to its ownership structure allowing greater scope for activism at a board level, its focus on sustainability and its ability to offer scale.

Even if LPs don’t own 100% of the companies they are invested in, they will almost certainly have a strong presence on the board, meaning access to information around sustainable performance, can hire or reward executives for hitting sustainable targets and can scrutinize governance closer than investors in public markets and even regulators. They also have a longer investment horizon, meaning they have the time to implement and execute new strategies and see them through to completion.

Secondly, PE as a business model is focused on maximizing efficiency and profitability, initiatives that are clearly aligned with issues like reducing energy use. To maximize efficiency and performance, PE firms also have a rigorous system of collecting KPIs, which can be used to facilitate the collection of sustainability data while aligning it with financial goals.

Finally, PE firms offer scale. Small and medium enterprises (SMEs), which make up a huge amount of the wider economy and that PE firms often invest in, may struggle with making the changes necessary to pivot to lower or zero emissions as they don’t have the technical ability, knowhow or resources to change their business model in the desired manner. Having a PE firm as an investor or owner means that SMEs can apply all the resources at their disposal and the synergies of their portfolio companies to help businesses make those changes.

How to make it count

Uniformity among reporting regimes is still to come, but firms can demonstrate their actions through increasing transparency, employing strategic messaging, recognizing their extended universe of stakeholders and engaging with them in a clear and thoughtful way. Explaining a firm’s sustainability model transparently as well as the improvements it is making from an ESG-perspective will make sure it can stand out to asset allocators, regulators and the growing universe of stakeholders which PE firms now must address.

This month, the SEC voted to approve new reporting rules that make climate disclosures legally binding. Following this long-anticipated development, sustainability communicators are rightly considering how their own strategies need to evolve. While Scope 1 and 2 emissions are the primary target of the new rules, conversations on the importance of reducing Scope 3 emissions continue to rise at a fast clip.

Scope 3 emissions refer to indirect emissions that occur both upstream and downstream of a company’s value chain. The Science Based Targets initiative (SBTi)— a global collaboration launched by CDP, the United Nations Global Compact, World Resources Institute and WWT in 2015 — considers Scope 3 emissions the “most significant and most challenging source of emissions from businesses.” According to CDP, emissions in a company’s supply chain are on average 11 times higher than direct (Scope 1) emissions and reflect more than 70% of total emissions. Sectors with large, global value chains — including the food and agriculture sector — likely experience the most pressure to decarbonize their supply chains.   

Since 2021, Google Trends reports search volume for topics related to Scope 3 emissions has increased by more than 214%, signaling heightened visibility of the importance of reducing emissions throughout the value chain. As the pressure to reduce Scope 3 emissions intensifies, there are three best practices for sustainability communications leaders to leverage.

Transparently Report Out Scope 3 Emissions

Though the new SEC reporting rules lack a mandate for reporting on Scope 3 emissions, regulations in other markets — especially Europe — go much further. Due in part to this global regulatory pressure, disclosing emissions is becoming common place for large companies. To qualify as a science-based target, companies must have a plan to “reduce Scope 1, 2 and 3 emissions to zero or a residual level.” As of this writing, 7,705 companies have started the process of setting a science-based target and 4,778 companies have had their targets approved.

For companies that haven’t taken the step of aligning with SBTi, finding ways to start tracking and reporting out on Scope 3 emissions is a best practice. Scope 3 emissions can be disclosed within sustainability reports and key reductions in emissions should be celebrated in website materials, handouts or even content for LinkedIn.

Focus Media Pitches on Achieving Rather Than Setting Goals

Over two decades ago, psychologists conducted a study designed to assess how people think about the future. Researchers asked participants to consider their activities and available spare time that day and a month from that day, and then decide on which day they’d have more time. This landmark study demonstrated humanity’s tendance toward “delay discounting” wherein we prefer to incur a large cost later, rather than a small cost now.

As 2030 inches closer, the gap between where companies are currently, and the ambition established within their net-zero targets is becoming apparent. In response to the “delay discounting” related to climate targets, many sustainability-focused reporters are giving less airtime to goals announcements and instead prioritizing coverage for companies that meet or exceed targets early. Highlighting key successes and strategies that can be leveraged by other stakeholders to reach net-zero can be a top-tier media-winning strategy.

Collaborate to Proactively Address the Barriers to Decarbonization Within the Value Chain

Disclosing and reducing Scope 3 emissions is challenging because these emissions are not produced by the company themselves. Companies must lean on suppliers and customers to report emissions and track progress. This is particularly challenging for companies like food processors that take in a wide range of inputs to create a food product, and for companies that operate across multiple markets with a patchwork of sustainability regulations. Sharing learnings throughout the value chain and collaborating to increase the accuracy of Scope 3 emissions reporting must become a standard practice. Rather than a “race” to net-zero, we must consider how we can collaborate to get there together.

Though the new norm of reporting out on Scope 3 emissions and diligently working to meet targets set well into the future may be challenging, my colleagues and I remain energized by the opportunity to define solutions for entire value chains to collaborate on decarbonization. By setting transparent goals, working to achieve them and collaborating with sector partners, we can take critical steps on the journey to net zero.

Ericka Loida contributed to this piece.

The U.S. Securities and Exchange Commission (SEC) voted today to adopt a long-awaited rule mandating that public companies listed in the U.S. disclose financial risks related to climate change.

The decision came two years later than expected – a period that has seen investor and corporate support for ESG grow and more recently ease amid a political backlash that labeled efforts “woke capitalism.”

The new regulation, effective on May 5, will become a requirement for publicly traded companies.

The SEC rolled back what was perceived as the most onerous part of the rule it proposed: the requirement that companies disclose Scope 3 emissions – those produced by their suppliers and customers.

The new rule requires measurement and disclosure of carbon emissions, as well as reporting about factors like extreme weather events and the clean energy transition that are increasingly impacting public companies’ bottom lines – information the SEC wants investors to have to make investment decisions.

Specifically, the final rule requires companies to disclose:

· Scope 1 and/or Scope 2 greenhouse gas emissions

· Material climate-related risks and activities to mitigate or adapt to such risks

· Information about the company’s board of directors’ oversight of climate-related risks

· Information about management’s role in managing material climate-related risks

· Information on any climate-related targets or goals that are material to the registrant’s business

· Disclosure of the financial statement effects (costs and losses) of severe weather events

Since the SEC proposed the rule in March 2022, it received more than 24,000 public comments – the most in the Commission’s 95-year history.

A lawsuit challenging the rule was filed by 10 states just hours after the vote. Industry groups have threatened to sue to stop the rule from taking effect. The rule will also face challenges from congressional Republicans; it would be unlikely to survive if former President Trump prevails in his bid to return to the White House.

FleishmanHillard’s Public Affairs and global ESG specialists are here to help clients navigate the fractured regulatory landscape and stakeholder expectations in a way that allows them to manage risk and reputation.