How can ESG scores of businesses help heal the world FirstpostView Full Coverage on Google News
Impact Investing Forum 2022
London. April 28-29, 2022.
With COVID upending the routine life of the world, the call for businesses to increase their environmental, social and governance (ESG) performance is stronger than ever now
I recently watched a documentary – The Year Earth Changed. It was about the year that the people of Jalandhar, India, woke up to clear views of the Himalayas, 200 km away, from their rooftops. The year when Los Angeles, USA, experienced its best air quality in 40 years. The year beach closures in Florida, USA, contributed to a 39% increase in nesting success for the endangered Loggerhead turtles.
This was 2020, the year of the pandemic, and the year we let Earth breathe again.
COVID-19 upended routine life everywhere. But on the flipside, the worldwide lockdowns suspended industrial production, natural resources extraction, and transport, reducing global air pollution drastically. Studies reported that carbon monoxide emissions decreased by more than 50%.
So, yes, COVID-19 did seem to be Nature’s way of rebooting. But do we need a pandemic to remedy the ravages our planet is subject to? If anything, it should be an eye-opener to the catastrophic consequences of biodiversity damage, pollution, and consequent climate change.
Anthropogenic pollutants are eroding the planet at an alarming rate. The 2017 Lancet Commission report on pollution and health suggested that pollution is the cause of over 16% of global death. It said that air pollution is responsible for up to 8% of these deaths – three times more than the deaths caused by tuberculosis, malaria, and AIDS, and 15% more than those caused by warfare and other global violence.
The need of the hour, therefore, is for people and institutions worldwide to do their bit to address this crisis. Part of the global action in this direction is the COP26 UN Climate Change Conference in Glasgow. Leaders from more than 190 countries, along with negotiators, researchers, and citizens, came together to strengthen the global response to the climate change threat. In the summit’s first major deal, on November 2, more than 100 world leaders at the Summit pledged to end and reverse deforestation by 2030. The pledge includes almost ?14bn ($19.2bn) of public and private funds.
Businesses and industry, too, are key stakeholders in this climate crusade. And consumers, collaborators, and investors are cognizant of this. The call for businesses to increase their environmental, social and governance (ESG) performance is stronger than ever. These three ESG factors help companies evaluate how they contribute to sustainable development by dealing with climate crisis and sustainability, human rights and diversity, compensation, and data privacy.
Why So Significant?
ESG measures needs to be in focus for any business that wants to future proof itself. More and more consumers are expecting socially responsible and sustainable practices across industries and business sectors. Investors and policymakers too are seeking out and supporting businesses that prioritize ESG.
Consumers and B2B decision-makers surveyed for the latest WE Brands in Motion report, The Bravery Mandate, rated environmental sustainability and income equality among the top issues respondents wanted brands to address. And 71% of respondents felt that brands have an obligation to engage with social/global problems when they impact the business and stakeholders. Two out of three surveyed even said they are more likely to purchase or recommend products or services from brands that address societal issues that matter to them.
Walk the Talk
To identify ESG issues that matter most to their business sector and stakeholders and to address them, brands must look inward and find a purpose that is authentic, relevant, and viable. As author Simon Sinek puts it, “people don’t buy what you do; they buy why you do it”,
The Brands in Motion report shows that audiences expect brands to focus on issues relevant to their sector. In other words, build on, not away, from your core brand promise. Companies like Reckitt and Chr. Hansen, for instance, are earning praise for their focus on ESG, for doing just that.
Health and hygiene products manufacturer Reckitt has engaged in a multi-year mission to improve the health and hygiene of under-privileged communities in India. After the Covid-19 crisis hit, Reckitt brand Dettol donated product care packages to 150,000 National Health Service workers and donated media space to the government to support its vital public health announcements.
Chr. Hansen, a bioscience company in the human nutrition space, has an inherently ESG-friendly business model as it specialises in producing bacteria that reduce pesticide usage, increase crop yield, and curb food wastage. The company has also developed a unique accounting system that measures the impact of all its products against the UN’s Sustainable Development Goals and helps it stay true to its brand promise.
That is precisely what consumers are looking for – quantifiable, impactful action. A fact validated by the Brands in Motion report that recorded a whopping 75% of respondents saying that brands should invest in making the world a better place.
At the same time, audiences are also growing skeptical of purpose washing. The study recorded that despite rising expectations, 52% of consumers and B2B stakeholders say that brands that take stances on societal issues are just trying to sell more products or services. Consumers can spot insincerity and will call out an ostentatious campaign before you can say ‘oops!’.
That’s why brands must stay rooted in their values and be clear about what they stand for. Transparency and stability are key – 72% of respondents of the Brands in Motion study said they would rather see brands make long-term investments in one issue or cause rather than switch causes each year.
Purpose Begins at Home
Even with authentic purpose and a committed ESG strategy, people expect, and are more trusting of, actions that emphasize local needs.
Brands in Motion respondents, too, expressed a significant interest in seeing brands tackle local issues. Forty-one percent said brands should focus on making their local communities better versus 5% who said brands should tackle global issues. Sweeping, generic sustainability pledges no longer wow consumers. Instead, communities want to see and experience the impact of such initiatives in their immediate geographies.
Brands like Godrej & Boyce in India, for example, have taken the cue. The company, in collaboration with World Wide Fund for Nature, India, recently launched Magical Mangroves. This nationwide campaign which highlights the significance of mangroves conservation and urges citizens to join the conservation movement and become mangrove ambassadors.
The expectations of consumers and communities from brands have evolved. Corporate social responsibility just doesn’t cut it anymore. A brand’s commitment to its stakeholders must go beyond the perfunctory ‘donation’ or ‘health camp’.
I remember what one of my business school mentors once told me – “It’s not the money you gave away that matters. What is more important is what you did with the money you kept”. That’s what ESG is.
A robust ESG strategy has become indispensable and is playing an increasing role in brand success stories. An increasing body of research has been showing a positive link between ESG scores and financial growth. Investors and venture capitalists too are interested in how companies score on their ESG policies and practices.
To conclude, in the words of Darren Walker, President of the Ford Foundation: “Aligning business and investment with our goals for positive social change is not merely a matter of preference, it is an absolute necessity.”
The author is the Group CEO of Avian WE. Views expressed are personal