What is ESG and why should brands get involved?

Key Takeaways:

ESG practices are vital for business success, with early adopters experiencing significant profit increases.
ESG encompasses Environmental, Social, and Governance standards, shifting from risk management to value creation.
Authentic and transparent communication of ESG initiatives is essential to avoid accusations of greenwashing.
ESG initiatives offer multiple benefits, including contributing to growth, reducing costs, managing compliance, attracting talent, and enhancing productivity.
Utilising professional communicators and establishing continuous audit processes are key for effective ESG implementation and staying ahead in a rapidly evolving landscape.

There has never been as much awareness and urgency, locally and globally, to adopt and drive Environmental, Social and Governance (ESG) practices and initiatives. Companies who acted early and focused on integrating ESG into their triple bottom line saw profits rise three times faster than those who didn’t. In the wake of a pandemic, growing geopolitical tensions and uptick in natural disasters, consumers, investors and even policymakers are realising a greater need to accelerate ESG actions and progressions, making it more important than ever for businesses of all sizes to implement ESG standards in order to thrive in the present and future proof itself. After all, our society is no longer solely dependent on the government, but also on well-functioning businesses that safeguard their employees, consumer interests and environmental needs.

Companies of all sizes and industries are recognising that change and improvement are imperative for our future. ESG and sustainability initiatives are no longer a nice to have, they are not a set and forget task. ESG is a standard that helps a business grow and maintain its ethical practices in all parts of its business. What it means to be an expert in this space will continue to evolve and change, and businesses need to adapt how they operate and practice with it.

What is ESG?

More and more businesses are being introduced to the multi-faceted and all-permeable benefits of ESG, equipping them to become resilient in current and possible future scenarios. But before actions can be put in place, we all need to go back to the basics of ESG and understand exactly what it means.

ESG is an acronym for Environment, Social and (Corporate) Governance that relates to a set of standards for a company to develop responsible goals, values, and practices. Although it has traditionally been used from a risk/challenge perspective, it has now transformed into value creation for organisations.

‘E’ or environmental:

This pillar focuses on the impact of resource consumption of any business on the environment including one’s carbon footprint and wastewater discharge, among other activities that are impacting the environment on a micro or macro level.

‘S’ or social criteria:

This pillar focuses on how businesses interact with the communities where it operates. This even addresses internal policies related to labour, diversity, and inclusion policies, among others. This is an important part of running a successful business, with research indicating that humans are more likely to work for and purchase from a company whose principles and practices are aligned with their own.

‘G’ or governance:

Relates to internal practices and policies that lead to effective decision making and legal compliance. Poor corporate governance has stood at the core of some of the biggest corporate scandals. Unethical practices like conflicts of interest or improper business practices can have a devastating impact on a company and its shareholders. On the flip side, a company that is governed well, mitigates and controls risks avoiding mismanagement, potential scandal and regulatory sanctions will see a positive return on investment.

It is important to remember that ESG is by no means just a concept. Organisations have to do more than pledge to enact ESG initiatives. It’s pointless for brands to shout about how they’re sustainable and socially responsible if they’re not showing the actions, they’re taking to achieve this. Brands today must be authentic and transparent in their ESG communications. Ultimately, success in this area belongs to organisations who take ongoing reassessments and measures to define strategy, track metrics and orchestrate results for ESG, as opposed to making empty declarations.

How can this translate into your brand and business needs?

There has been a list of examples across the globe of businesses facing major backlash and criticism after making ESG promises or actions. This has left other businesses feeling overwhelmed and reluctant to get started on their ESG plans, out of fear of facing the same accusations of greenwashing or ignorance to the negative impacts they impose on society.

Yet, the potential for value creation makes the ESG case too compelling to leave unexplored, with research from McKinsey finding that companies that pay attention to ESG concerns do not experience a drag on value creation—in fact, quite the opposite.

Contributing to top-line growth

Today’s consumers are more informed than ever before, with many reconsidering the products they buy and who they buy them from. Research found consumers are more likely to purchase from brands that are sustainable and responsible, and many are willing to pay more for products and services that protect the environment. On top of this, brands are able to gain better access to new markets and even expand their operations in the existing markets. Showing responsible practices that will support the greater community can establish a relationship of trust with government and community agencies. Organisations are then more likely to be granted access, approvals, and licenses, leading to better access to resources.
Reduction in costs

Contrary to popular belief, companies that can make the switch to more sustainable and ethical methods of production tend to be more efficient and reduce their costs. Small green steps like switching to greener packaging, digital receipts, usage of renewable energy and effective waste management can go a long way in helping businesses save costs as well as reduce their carbon footprint. FedEx is a great example of this. With the aim to convert its entire 35,000-vehicle fleet to electric or hybrid engines, it has, to date, converted 20% of its fleet, which has already reduced fuel consumption by more than 50 million gallons.
Effective management of regulatory compliances and stakeholders

All businesses are affected by some or other forms of regulations depending upon the markets they operate. Businesses with strong ESG measures, especially on Governance, invite less scrutiny from regulators and have greater operational freedom. They also face less pressure on climate change from activists and employee unions.
Attracting talent and boosting employee’s productivity

Various research has shown that implementing ESG can help companies attract and retain better talent and enhance employee motivation by instilling a sense of purpose and high value productivity. Based on the latest Index from the Climate Change Tracker, when it comes to the role of corporations and specifically their employers, 70% of respondents do not feel supported by their employer for personal climate action aspirations. Nearly two-thirds of respondents would think more positively of their employer if they were offered support with ESG initiatives, suggesting the need for companies to build tailored and individual solutions to reach net-zero.

Role of Communications

Staying ahead of the curve on ESG means asking the tough questions. But with board level commitment, great professional advice, and a good integration strategy, ESG success will benefit us all. 

But it isn’t just about strategy — stories matter. By elevating, sharing, and marketing ESG stories, companies can leverage opportunities to enhance corporate reputation and develop their brand as a leader in ESG. The way in which that story is communicated is critical, particularly during this age of scepticism and high risk of greenwashing accusations. Whether it’s down to regulatory change, greater understanding of the climate crisis, client pressure, recruitment needs or investor questions, companies need to make sure their ESG communications are authentic, comprehensive, and thoroughly backed by evidence.

Utilising the skills and knowledge of professional communicators can help develop strong sector-specific knowledge but also keep a wider perspective of where we can identify opportunities to advance sustainable practices where there is also a communications win. And one of the most powerful ways to reach your audience in the ESG space, is to establish a continuous audit process to help create the story that rings true for your business and can progress with the changing ESG standards. This collaborative audit process can also help you stay on top of your ESG goals and practices by continually reassessing and re-evaluating your business objectives and practices. For example, if your business regularly supports and donates to a charity, why not deepen that relationship by proposing volunteer days for employees during working hours or by providing the charity with an additional communications platform via your website and owned channels.

Establishing new ESG standards and practices for all businesses is here to stay and is only increasing. It’s clear that entities of all sizes have a choice, get on board with ESG, or risk losing opportunities to those that do.