Consumer and investor pressure combined with new reporting standards are welcoming a fresh wave of ESG initiatives set to redefine growth as businesses create value for all stakeholders.
Rising global consciousness of businesses’ environmental and social impact is ushering in a new wave of transformative business standards. Where once vague philanthropic pledges and environmental commitments may have sufficed, investors, customers and employees are now demanding practical and measurable business goals that embrace long-term thinking and create value for all stakeholders.
At a time of great uncertainty, environmental, social and governance (ESG) frameworks are enabling businesses to develop and communicate this new mindset. And with research from Responsible Investor in conjunction with UBS Asset Management revealing that 78% of asset owners globally are already integrating ESG into their investment processes, these frameworks are set to define the next decade and transform what growth looks like for good. 1
Under pressure
According to McKinsey & Co. society experienced five years of digital As collective concerns about the distribution and purpose of wealth grow, rising social awareness is prompting consumers to think differently about where they place their money and allegiances, and the impact they will have on the future of people and the planet. Millennials, in particular, are keen to harness their financial wealth for meaningful pursuits. A study by Fidelity Charitable revealed that 79 percent of wealthy Millennials who have made an impact investment rate charitable giving as very important. 2
“This generation see themselves as defined less by their wealth and more by what they do – it’s a shift from previous generations,” explains Wealth Insight’s Oliver Williams. The result is that people want to spend money with businesses working to benefit society, a shift that’s driving businesses to reconsider how they create value.
Adding to this consumer pressure is a new conscientiousness among investors, a growing number of whom believe companies that perform well on ESG are less risky, better positioned for the long term and better prepared for uncertainty. It’s a development evident in recent research from Morningstar, which revealed that ESG funds captured USD 51.1 billion Fidelity Charitable, September 2019. 3
Rigorous reporting
Promisingly, developments are enabling businesses to better embed ESG across their operations and communicate their efforts in new ways. In September 2020, the big four accounting firms developed a standardized set of ESG metrics with the World Economic Forum around four key principles: governance, planet, people and prosperity, with the project seeking to provide a common set of disclosures leading to a coherent and comprehensive reporting system. 4
As businesses build back post-pandemic, this new code of conduct should help to realign capitalism for the benefit of broader society, and improve the way that companies measure and demonstrate their contributions toward creating more prosperous, fulfilled societies and a more sustainable relationship with our planet.
Progress in practice
With the demonstration of measurable ESG credentials a win-win for businesses – increasing appeal in the eyes of customers and investors alike – environmental and social commitments are now being realized in increasingly creative yet reportable ways.
When it comes to sustainability, several of the consulting industry’s leaders have focused on travel as part of their ESG drives. Boston Consulting Group and Bain & Company, for example, recently announced plans to curb how much their staff travel, as well as ensuring remaining travel is powered with sustainable energy. 5
Elsewhere, Prada is demonstrating its conscious commitments through increased accountability. 6 The Italian luxury group recently secured a business loan tied to its sustainability targets, with interest rates on the five-year agreement to be reduced following the achievement of specific milestones, including increasing the number of its stores assigned sustainable certifications and the training hours for employees, and the use of regenerated nylon in its products.
Elsewhere, Prada is demonstrating its conscious commitments through increased accountability. 6 The Italian luxury group recently secured a business loan tied to its sustainability targets, with interest rates on the five-year agreement to be reduced following the achievement of specific milestones, including increasing the number of its stores assigned sustainable certifications and the training hours for employees, and the use of regenerated nylon in its products.
On the social front, a growing number of companies are modifying senior leadership pay as an immediate and equitable change that can be implemented quickly and tracked by consumers and investors alike. Studies report that corporate diversity has become the most common type of metric used in setting executive pay. 7 Indeed, companies are looking to increase the share of women and people of the global majority in their workforces, amid last year’s Black Lives Matter protests and the social inequalities laid bare by the Covid-19 pandemic. McDonald’s, AmEx and Nike are among the latest industry leaders to tie the diversity of leadership recruitment to executive compensation. 8
Most importantly, these structural approaches represent just the beginning of a new era for ESG, as companies embark on iterative refinements to their ESG propositions. Clothing manufacturer Gildan is one case in point, following its eighth consecutive inclusion on the Dow Jones Sustainability Index with renewed, long-term commitments. “While we are pleased with the success and recognition we have achieved, there is still more work to be done,” says Gildan CEO Glenn Chamandy, “and we are now working on our ‘next-generation’ ESG strategy and a new set of long-term goals.”
Key implications
Key implications
- Think forward: As ESG reporting becomes commonplace, businesses must proactively develop their ESG propositions to stay ahead of the competition, rather than merely reacting to customer and investor expectations.
- Pay in for pay-off: ESG frameworks can boost a company’s bottom line as well as its reputation, enabling leaders to justify time and resources devoted to ESG initiatives.
- An emotional pull: Augment ESG reporting with qualitative emotional case studies that demonstrate the positive impact of ESG initiatives, inspiring customers and investors beyond statistics.
More to explore
More to explore
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