ESG: more than just a PR tick-box exercise
ESG, or Environmental, Social, and Governance, is the umbrella term for a business’s impact and approach to sustainability issues, including its investments.
The three components of ESG are:
Environmental – business activity and its impacts around topics like climate change, environmental impacts, biodiversity, greenhouse gas emissions (GHG), renewable energy, pollution, waste and recycling.
Social – this criteria centres on how a business or company views and treats employees, the local community and people they come into contact with. Working conditions and employee wellbeing, along with diversity and inclusion are also important.
Governance – highlights how a business carries out day-to-day operations, with a focus on ethics and standards, diversity in staff and management, political lobbying, corruption policies, donations, wages and tax matters.
Greenwashing
However, many businesses are content to “greenwash” their ESG commitments. This reduces the seriousness of what the responsibility of having and implementing an ESG policy involves, making it little more than just a buzzword.
FIFA was slammed in a report for their claims that the 2022 World Cup in Qatar was a “carbon neutral” event, but Carbon Market Watch said they had “serious doubts” on this. They described the World Cup as underestimating “…the tournament’s true emissions levels and climate impact.” By claiming that the event was carbon-neutral, it paints a misleading picture and is not a “harmless exercise”. Carbon Market Watch went on to state such claims mislead “…players, fans, sponsors and the public into believing that their (potential) involvement in the event will come at no cost to the climate”.
Sea change
Globally, asset managers are set to boost their investments in ESG to reach approximately $33.9 trillion by 2026, up from $18.4 trillion in 2021. This growth represents an expected average annual increase of 12.9%. In less than five years, ESG assets are predicted to make up about 21.5% of the total assets managed worldwide.
Consumers are now seeking socially responsible leadership from brands that prioritise both sustainability and environmental responsibility in their practices and investments.
New research in the US suggests that a major sea change in consumer behaviour is approaching, where authentically sustainable brands who put people and planet first, are at an advantage over organisations who engage in shallow greenwash over authentic sustainability investments.
The trend suggests that consumers are becoming increasingly discerning and conscientious in their choices. They are not merely swayed by marketing fluff that presents a superficial glow of sustainability. Instead, customers are looking for businesses that embody true environmental and social responsibility. Authenticity has become the key currency in the consumer landscape.
Consumers are now seeking brands that align with their values and beliefs, particularly those related to sustainability and ethical practices. They are more likely to support businesses that walk the talk when it comes to sustainable initiatives. This is further indicated by the increase and prominence of the B Corp label.
Brands that genuinely commit to reducing their carbon footprint, practice good working conditions, and contribute positively and genuinely to their communities, are earning the benefits of this changing consumer sentiment.
ESG and why your business should take it seriously
When economist Mark Carney was the Bank of England Governor, he wrote:
“In the future, climate and ESG considerations will likely be at the heart of mainstream investing. Investors will tailor their investments and fulfil their fiduciary duties through better quality and more widely available data on sustainability and performance, and more informed judgements of strategic resilience.
“Companies with strong ESG performance have demonstrated higher returns on their investments, lower risks and better resiliency during a crisis.”
ESG reporting is still voluntary in many countries, including the UK, but looking forward, greater transparency in corporate ESG reporting will be required, so it pays well – quite literally – to be proactive in setting out a strong position on a business’s environmental, social and governance standards and commitments now.
If you are considering integrating ESG into your communication strategy, get in touch to see how we can help you – find our contact form here, or call us on 0845 625 0820 for a friendly chat.