ESG (Environment, Social, Governance) strategies are no longer about compliance. ESG strategies are a momentum maker and vehicle for growth for your organization.
How? By aligning it with the 5 Drivers of momentum, most importantly DISRUPTION and SOCIAL IMPACT to get stakeholders (e.g. consumers, employees, investors, media) to think about your company differently.
WHAT’S UP ⬆️: ESG Strategies
The force keeping CEOs up at night? Momentum for ESG is on the UP again.
ESG strategies are not new but they are going through a momentum moment as they are in the midst of going through an evolution.
Initially, ESG was primarily an investment strategy used to promote social responsibility. Investors and ESG funds excluded companies and industries based on criteria like involvement in “vices” (eg. tobacco and alcohol), controversial affiliations (such as links to Apartheid), and being bad for the environment.
Now momentum for ESG is on the rise fueled by an evolution in its meaning and a renewed sense of its importance for all companies & organizations across all three elements of Environmental, Social and Governance: increased attention to climate change, increased importance of social movements and consumer & employee demand for purpose & measurable impact beyond products.
The Challenge: Company leaders know they need an Environmental, Social and Governance strategy… But they want to go beyond “compliance” — they want to use these strategies as a force for business momentum. As companies start using them for strategic advantage, we see three challenges arise with execution:
- Statements with no substance: Today’s savvy consumers, employees, prospective employees, partners, investors, etc see through buzz-wordy but empty ESG statements. Companies need tangible & measurable proof of impact to back up their words.
- Failure to communicate & connect the dots: Some companies are successfully making an impact — but struggle with how to tailor communications about their ESG initiatives to different stakeholder groups (e.g. consumers, employees, prospective employees, partners, investors). Others are integrating ESG initiatives but don’t clearly communicate how they align with their brand identity and values.
- Inconsistent Standards: ESG standards vary across industries and ratings are often biased depending on who created them, making it difficult to compare companies to each other and see ratings in context.
ESG x Momentum Strategy can fuel your company’s growth when integrated as a core part of your company’s momentum strategy — aligned with the 5 drivers of momentum.
- DISRUPTION: ESG initiatives, particularly “governance”, can help disrupt the way stakeholders think.
Companies aligning governance with disruption are taking the lead on turning power dynamics upside down and uplifting members of historically marginalized communities (LGBTQ, BIPOC, Women, etc) by providing a platform and additional visibility.
Dara Treseder (Head of Global Marketing, Peloton) controls the company’s brand and community… Peloton has a portfolio starting off with a four year, $100M investment “to fight against racial injustice and inequity, and the promotion of health and well-being for all”.
2. INNOVATION: Positioning ESG initiatives as an exciting evolution that stakeholders need to be part of will get them excited that you are helping the environment AND creating something tangibly new for them.
The beauty and CPG industry is leading the way with this through new ingredients / formulations, sustainable packaging and marketing initiatives.
Kylie Cosmetics’ recent shift towards clean & vegan beauty got consumers excited about her re-brand / new products AND optimistic about the evolution towards sustainable, clean products.
Kylie Cosmetics started by building hype for a secret new initiative in May 2021 when they wiped their Instagram page of all content and shut down their website. Going dark and websites shutting down created intrigue & excitement among consumers and sparked discussion about what’s next.
On July 1, Kylie Jenner announced the Kylie Cosmetics rebrand and complete reformulation of all products to ensure all are vegan and clean.
3. POLARIZATION: ESG initiatives & company values / purpose statements can be used to send a clear signal as to who you are for.
Organizations like the NBA have taken clear stances on which audience they are after, strengthening their relationship with some consumers and alienating others
The NBA committed to the support of HBCUs, generating $3 million for a community with a large amount of NBA fans, and some players as well → Supporting a community their audience will like, but probably alienates some other fans.
4. STICKINESS: Connecting the dots for stakeholders as to why your ESG strategy / initiatives authentically make sense for YOUR organization and support your company’s brand and values will help differentiate you from competitors.
Bozoma Saint John (CMO, Netflix) is tasked with making Netflix’s brand stick out from competitors… Netflix has a strong connection between their ESG goals/impacts and the company’s focus. Diversity in their stories presented on the screen and making their films and series accessible for all less are great examples, and while environment issues are less relevant to the company’s focus, they still do a good job, reducing internal emissions and their carbon footprint.
5. SOCIAL IMPACT: Programmatic initiatives that drive measurable impact will ensure stakeholders (from consumers to investors & employees) know the strategy goes beyond statements.
Setting a framework for the strategy and measuring & reporting KPIs ensures all stakeholders understand the strategy’s impact year over year.
Companies & sectors effectively structuring & measuring their initiatives:
CPG & Beauty: The inaugural ESG Cosmetics report ranked 14 global cosmetic majors according to reputation relating to ESG efforts based on analysis of publicly available data from December 2020 to February 2021 across print and online media, investor, regulator, government, public and NGO sources from 250 countries in 100 different languages.
Alva’s ESG ranking saw Kao take top spot with 66 points, followed by P&G Beauty (64 points), Estée Lauder (63 points), Beiersdorf (63 points), Unilever (63 points), Sephora (41 points), L’Occitane (33 points), Natura (31 points), Clarins (29 points), Revlon (20 points), Coty (18 points), L’Oréal (17 points), Shiseido (14 points) and Rituals (0 points).
Analysis is conducted across 26 ESG issues from the globally recognised framework outlined by the Sustainability Accounting Standards Board (SASB).
Analysis showed that Estée Lauder ranked well on the topic of environmental and social impacts of palm oil supply chains.
FinTech: Amrita Ahuja (CFO, Square) plays a role in setting & measuring 4 main focuses for their ESG report:
- Climate Action: Increasing efficiency, conducting a thorough carbon audit in order to reach their goal of net zero carbon in 2030, as well as donating $10 million to adopt clean energy for bitcoin mining and announcing approval for employees to work from home permanently to cut down on commute emissions
- Social Impact: Focused on financial inclusion, pledging $100 million to minority and underserved communities, and donating $850 million in PPP loans, giving small business access to a financial lifeline.
- Employees and Culture: Employees were 41% women and 21% underrepresented minorities, which grew 4.9% and 9.3% year to year in relative percent
- Corporate Governance: Promoting “long-term value, engender public trust, and serv(ing) the best interest of its stockholders, sellers, customers, and other stakeholders.”
MailTech: Lob.org exists to advance the values at the heart of Lob — a service that automates and simplifies direct mail and address verification, giving businesses greater flexibility, visibility, and accuracy of offline communications and data.
- Environment: Reforestation — They plant more trees [Over 200,000] than needed for the paper they’ve sent through mail since Nov. 2017 and are committed to recycled paper, raw material sourcing, energy efficiency, and waste management.
- Social: They invest in practices and partnerships that address systematic racism through Pledge 1% (donates 1% of time and product to social impact), donates/discounts products for nonprofits, and gives employees three days of volunteer time.
- Governance: Supporting justice reform through apprenticeship programs for formerly incarcerated people.
WHAT’S DOWN ⬇️: Disjointed & siloed ESG initiatives / strategies.
WATCHOUT: Call-out culture on inconsistencies with ESG initiatives.
- Take the case of Pepsi and Coca Cola. Both companies get high ESG scores from the biggest ratings firms. They are also typically amongst the largest holdings for ESG funds, largely because they rank high on parameters such as corporate governance and greenhouse gas emissions. Consumers call them out because their core businesses involve the manufacturing and marketing of addictive products that are a major cause of diabetes, obesity, and early mortality.
- Ecosystem of ESG evaluations and ratings, as well as investor knowledge surrounding sustainable financing within fashion, lacks comprehensive auditing and transparency from companies. Weeks before fast-fashion brand Boohoo hit the headlines for exploitative labour practices in its supply chain during the pandemic, for instance, the company received a “double A” ESG rating — identifying it as a leader in the industry for managing ESG risks — from finance firm MSCI. In the wake of the scandal, Boohoo conducted an independent review and has committed to make changes. (As of press time, both Boohoo and MSCI did not respond to a request for comment.)