The Importance of ESG Strategy
Today’s consumers are becoming increasingly aware of the importance of sustainability in their everyday lives, and this influences what companies they buy food, clothes, technology, and other private goods from. In addition to sustainability, consumers are also becoming increasingly aware of what ethical issues may be associated with a businesses’ operations. Sustainability and business ethics are both a part of a company’s environmental, social, and governance, or ESG.
When consumers recognize that a business is not making an effort to operate sustainably or adopt more ethical practices, they don’t just boycott the brand – they demand change. In addition to the moral implications of unstable or unethical practices, this phenomenon should move businesses to pay more attention to their ESG.
What is ESG?
ESG stands for environmental, social, and governance and describes the impact a company has on each.
· Environment: The state of our environment is one of the most pressing concerns of the 21st century, and the way companies use energy and manage their environmental impact have huge effects on the future of the planet and society.
· Social: A brand’s inclusivity and diversity factor into the social aspect of ESG along with how it cultivates a relationship and interacts with the community it serves.
· Governance: The governance part of ESG refers to how transparent a company is, its relationship and dialogue with industry regulators, and its history of violations. It also includes the company’s internal systems, employee culture, practices, and procedures and how those in important positions make decisions.
ESG is typically expressed as a rating or score, which serves as a numerical value for how well a company is performing on a range of environmental, social, and governance topics.
ESG is often confused with CSR, a brand’s corporate social responsibility. CSR describes a management concept in which companies integrate environmental and social concerns into their operations and relationships with stakeholders, thereby adopting more sustainable and ethical practices. CSR is a more self-regulatory concept, whereas ESG just describes a company’s impact and self-regulation as observed by the public.
Why is it important?
Aside from the obvious moral significance of having more sustainable ad ethical practices, there are a variety of other reasons why ESG should be important to a brand.
· Both banking and financial sectors have implemented ESG rules into their criteria for funding. Stakeholders must now show evidence of sustainable and ethical practices to avoid poor lending conditions, or avoid getting rejected for a loan entirely, and exclusion from capital markets,. Developing and adhering to a ESG is a good way to get started and shows lenders that the company truly cares about its impact on the environment and society.
· Private investors may hold many of the same views on sustainability and business ethics as consumers do, and most also realize that making investments in companies with higher ESG scores nets a higher return on investment. In this case, a high ESG rating reduces a brand’s reliance on lending and the need to take revenue risks.
· A high ESG score shows the world that a brand has put their money where their mouth is, so to speak. It declares good intentions to consumers, investors, and lenders. A high ESG score indicates that a business has minimal risks and can create greater value.
Benefits of ESG
1. Comprehensive ESG programs can increase stock liquidity
As previously mentioned, both institutional and individual investors are more likely to invest capital in companies that proactively govern and operate in a more sustainable and ethical manner. In fact, some investment research and consulting firms have developed their own metrics that measure and rank brands based on ESG criteria to help guide investors. Thus, companies that focus on developing a strong ESG program will get more funding. The number of investors seeking out brands with good ESG should only continue to grow, and ESG scores will likely become more of a factor in their decision-making process.
2. ESG initiatives can unlock competitive advantages and value
Brands that recognize the importance of adapting to this shifting landscape will be more suited to identify the strategic opportunities that can provide value and give them an edge over competitors, thereby increasing market share. By being proactive with ESG and CSR, companies are better able to meet competitive challenges.
3. Proactive stances on ESG issues can increase customer loyalty and attract new customers
It’s obvious that sustainability and business ethics are becoming more important to consumers, and there are a variety of different studies that illustrate this phenomenon. One study from clean manufacturing leader Genomatica found that 86% of respondents believe sustainability would be equally important, if not more so, following the COVID-19 pandemic. A survey from Futerra showed that and 88% of respondents want brands to help them be more environmentally friendly and ethical in their daily lives. Another survey conducted by Cetus conveyed that almost half of consumers surveyed pay close attention to a brand’s social responsibility efforts when they make a purchasing decision. This is just the tip of the iceberg, and there are many other studies and surveys that show how sustainability and ethics are influencing consumer behavior. Companies that are proactive about ESG and have good CSR measures in place will attract tons of new business and increase loyalty in existing customers that value sustainability and ethics.
4. Companies that exemplify the best of ESG will attract and retain the best talent.
In addition to consumers and lenders, many individuals looking for reemployment also consider a company’s ESG and will likely research their CSR prior to applying. In fact, a clear ESG policy can be considered the baseline for hiring young talent, considering how important issues like climate change are to younger generations. A lack of ESG policies won’t just turn talent away, it can also make current employees seek employment elsewhere at companies making more effort to minimize or mitigate their impact on the environment and changing operations to be more socially conscious.
What does this mean for companies?
In order to secure more funding, be better equipped to face competitive challenges, grow their customer base, and attract and retain top talent, companies need to start developing ESG strategies right away. There is no one-size-fits-all approach, and companies should not try and be all things to all people. A brand must first identify the best measurable ESG criteria for their industry that aligns with existing corporate strategies. For example, a textile manufacturer may try and see where they can use less water, recycle most of the water they use, and outsource labor to areas with more ethical labor laws. An electronics manufacturer might use fewer toxic chemicals, increase energy efficiency, use less packaging, and switch to recycled and biodegradable materials in their products.
Additionally, companies can take The Climate Pledge and attempt to reduce their carbon emissions to zero by 2040.
How can you use social media to your advantage?
Considering the importance and benefits associated with it, companies need to tell the world about their efforts in ESG, and social media is the perfect place to do so. In fact, both ESG and social media have become increasingly popular over the last several years and are important to younger generations. Brands should take advantage of all the opportunities social media platforms provide to inform the public about their ESG efforts so they can begin enjoying the benefits that come with a high ESG score. To incorporate ESG and CSR into social media, companies should:
· Tell their story and stay true to it.
· Discuss specific ESG initiatives, goals, and progress towards achieving those goals.
· Utilize video to make engaging content showcasing their efforts.
Join ImpactWayv to start building ESG awareness for your company
ESG and social media collide on ImpactWayv, a platform that’s the first of its kind. ImpactWayv is the first ever social impact media platform that aims to unite people, businesses, and nonprofits in their efforts to make a positive impact on the world. Our platform provides access to CSRHub’s proprietary ESG/CSR ratings so users can see what brands are staying true on their sustainable and ethical promises. ImpactWayv gives companies that are serious about implementing effective ESG strategies into their operations a way to reach consumers that are serious about supporting businesses like them. Join the community today!