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December 19, 2018

Sustainability/ESG: A mandate for business survival

Written by Lucy Hartley
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When Patagonia recently announced it was donating a $10 million corporate tax windfall to environmental causes, the clothing and gear company was doing much more than generating positive PR. For firms such as Patagonia, Cisco Systems, and Nike, sustainability/environmental & social governance (ESG) permeate their entire businesses. Consumers, investors, and employees increasingly want these businesses to be good corporate citizens. Embracing sustainability/ESG means being a more relevant and valuable business to these multiple stakeholders.

For decades, businesses have demonstrated some measure of commitment to sustainability to protect their images and respond to legislative requirements. But businesses both private and public are making sustainability part of their core mission. For example, Cisco Systems has committed to a multi-pronged strategy to move the company from being a business that does some sustainability focused things to being a long-term, sustainable business. By 2020, Cisco will eliminate one million tons of greenhouse gases from its supply chain, and the company will reduce its use of virgin plastic 20 percent by 2025. According to an MITSloan report, 90 percent of executives believe sustainability is important (60 percent actually have a sustainability strategy).

Corporations have to go all-in with sustainability/ESG if they want to survive. Consumers, job seekers, and investors have high expectations. They have the tools to evaluate which businesses are meeting their expectations. And by and large, they distrust corporations for falling short.

In one of his annual letters to CEOs, Larry Fink, the founder and CEO of investment firm BlackRock, underscored how important it is for businesses to look beyond profits and be better corporate citizens. He wrote:

To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.

Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders.

Why is sustainability/ESG becoming so important? The following three contributing factors stand out. In subsequent blog posts, we’ll explore them in more detail:

1) Consumers Care about Sustainability

Consumers increasingly value companies that practice sustainability/ESG – and they are willing to spend accordingly. According to the Retail Industry Leaders Association, 68 million adult Americans base purchasing decisions on their values (personal, social, and environmental) and will spend up to 20 percent more on environmentally sound products. And the large and powerful millennial population places a particularly high premium on sustainability/ESG. Nearly 90 percent of millennials would be more loyal to a company that helps them contribute to social and environmental issues.

2) Investors Pressure Businesses

Investors are using sustainability/ESG as a criterion. The recently published Edelman Trust Barometer Special Report: Institutional Investors underscores this reality. The report is a survey of 500 global institutional investors representing firms that collectively manage over $4.5 trillion in assets. According to the report, 89 percent of respondents say their firm has changed its voting and/or engagement policy to be more attentive to ESG risks.

Once again, millennials emerge as a factor: according to Morgan Stanley, millennials are 2X as likely as the overall investor population to invest in companies targeting social or environmental goals. As Morgan Stanley’s Sustainable Signals report notes, “A younger generation of investors, who overwhelmingly believe that their investment decisions can make an impact, is leading the sustainable investing charge.”

3) Sustainability Makes a Difference in the War for Talent

Businesses are adapting to a shift in the way potential hires evaluate them. Gone are the days when perks such as salary and job titles dominated the decision making process for new job candidates. Those factors still matter – but younger generations of employees want something more out of their employer. In fact, three quarters of millennials would take a pay cut to work for a socially responsible company, and two thirds won’t work for businesses that lack strong CSR practices.

In a Harvard Business Review article, Jenny Davis-Peccoud of Bain & Co. discussed the results of a Bain survey of employees that found two-thirds of respondents reporting they care more about sustainability. “Employees expect employers to step up and nurture this growing interest,” she wrote. “When asked which group should take the lead on sustainability, more respondents cited employers than they did consumers, employees, governments, or all equally. In the developed world, a small but growing segment of what we call ‘sustainability enthusiasts’ view sustainability as a major factor in job choices and are willing to accept lower compensation to work for an employer that meshes with their beliefs.”

Businesses Respond

Given these factors, it’s not surprising that more businesses have been responding by treating sustainability/ESG as an imperative for survival. A number of organizations now track their efforts and encourage sustainability/ESG through formal consortia and educational programs. Barron’s, Corporate Knights, and FTSE Russell are among the influencers that rate sustainable/ESG firms, thus sharing benchmarks by which businesses can assess their own progress – and platforms for them to share their progress. The businesses that attain these rankings are creating a new standard for what it means for companies to succeed beyond maximizing profits. Being ranked on these kinds of lists is like being touted in the Fortune 500 – maybe even more so.

What You Should Do

Based on our own work with clients, many businesses have adopted sustainability/ESG but are missing one crucial element: a commitment to telling their narrative about sustainability to their investors. We suggest that you:

  • Survey your investors, clients, and employees about their attitudes about sustainability/ESG. Their answers might surprise you.
  • Take stock of your businesses’ commitment to sustainability/ESG both corporately and at the office level. You might uncover pockets of your business that have embraced sustainability at a grassroots level. Identify opportunities to begin adopting sustainability/ESG and obtain executives sponsorship.
  • Either develop an ROI-based strategy or create a team to do it. Your strategy necessarily needs to include a plan for keeping your stakeholders up to date on your efforts – not once but all year-round.

These are some of the key steps. At Investis Digital, we can help you craft the right story and use our Connected Content™ capabilities to optimize the message across every channel, whether social, presentations, webcasts or readable summaries. Contact Investis Digital. We can help.

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