Environmental Social Governance (ESG) refers to how much an organisation incorporates environmental and social goals into its business operations, outside of its primary goal to make profits for shareholders.
Environmental covers carbon emissions, energy use, recycling methods, pollution, and adhering to environmental regulations.
Social refers to charity work, safe workplace conditions, ethical codes of conduct, diverse hiring, and being active with the local community.
Governance concerns leadership practices within a corporation, ensuring accurate and transparent reports of accounting methods, decision-making, partnerships, anti-bribery, and compliance systems.
Though a lot of us recognise ESG as practices that should be done as a moral obligation; sadly, there are others who only think of ESG in terms of checking boxes to increase marketability. In extreme cases, this takes the form of greenwashing; i.e., fraudulently advertising goods to be environmentally friendly.
Not that it’s all bad news: the upside of greenwashing is that the broader public are becoming far more scrutinous when it comes to where they spend their money; which, in turn, means investors are following suit.
This can only be a positive for us in the long-run – after all, more scrutinous customers mean that companies are put under more pressure to implement effective sustainable change. But, if we wish to keep our reputations intact in today’s modern marketplace, we have to ensure that our ESG strategies are made with integrity.
According to this helpful infographic compiled by sustainable marketing agency Akepa, 72% of sampled customers want more sustainability information to be available when considering purchases – but unfortunately, 42% of sampled companies’ sustainability-related claims are exaggerated, false, or deliberately misleading. This isn’t just limited to obscure players – big names like Nespresso, Unilever, Keurig, Walmart, Coca-Cola, and Volkswagen have all been accused of greenwashing in the last decade, with those who have been found guilty having to pay out millions of dollars.
Not that it stops there – with so much information so readily available nowadays, we’re now under increased pressure to be transparent about our practices. Since environmental and social concerns are so central to the beliefs of younger generations, neglecting our ESG practices puts us in danger of long-term reputational damage – whereas showing ourselves as active, ethically responsible businesses will be a feather in our cap when it comes to attracting consumers and investment opportunities.
Tesla was dropped from the S&P 500 ESG Index earlier this year, with reasons cited being poor working conditions, allegations of racism, and a lack of low carbon strategy. While Tesla will be re-eligible after providing evidence that these issues have been rectified; until that point, exclusion results in diminished visibility from investors who use it to forecast safe investments.
Conversely, Apple, Microsoft, Amazon, and Google all regularly publish clear, transparent information about their ESG goals and progress toward them; and as such, enjoy a level of status as ethically responsible, sustainable businesses worth investing in.
So how can you focus your ESG efforts to ensure maximum effectiveness, the first time?