What is ESG, and why does it matter?
It’s likely that you’re increasingly seeing and hearing the term ESG. In this blog, we’ll discuss exactly what ESG is and why it matters to all businesses. ESG (Environmental, Social and Governance) is no longer a niche term with an investment focus, but instead is now a mainstream business interest.
What is ESG?
The world is changing. Brands are under increasing pressure to behave in an ethical and fair manner, and to project a public image of transparency and responsibility. Customers and employees are reserving their loyalty for businesses who share their values, and more people are holding brands accountable for the impact they’re having on our planet and society. There was a time when ESG strategies were a ‘nice to have’ but with growing stakeholder expectations, it’s become a necessity that you simply can’t ignore.
ESG refers to three non-financial performance indicators that measure the sustainability and ethical impact of a business – Environmental, Social and Governance.
In brief, ESG includes:
- Environmental – how the business minimises its impact on the environment
- Social – how the business impacts wider society and workplace culture
- Governance – how the processes of decision-making, reporting, and logistics are handled
This short clip from our recent webinar Where to begin with ESG communications breaks down what each component of ESG means. Watch the full webinar here.
The Environmental scope of ESG
What is included under the Environmental indicator will largely be down to your individual business and sector. Broadly, Environmental will cover your sustainability journey, from calculating carbon emissions and your action plan to reduce them, to your journey to net zero or carbon positive. Environmental is all about the impact your business is having on the planet, how you’re mitigating or offsetting any negative impact, and anything you’re doing to make a positive impact on our environment. In our business, our Environmental strategy includes (but is not limited to) our carbon reduction plans, our carbon offsetting strategy and our commitment to leading a climate positive workforce. For other businesses Environmental could also include strategies to reduce waste, or innovations around tapping into clean energy sources.
The Social scope of ESG
The Social element of ESG is wider, covering everything to do with society. It’s all about people, be that your own workforce, your customers, or the community around you. Social is all about the way your business interacts with people and encompass your strategies and actions to create a safe, fair and positive environment where everyone can thrive. In practice this might include safety and wellbeing plans, diversity and inclusion strategies, employee culture and organisational values, as well as how your workforce might be supporting your local community through volunteering. As an example, in our agency, the Social element of our ESG strategy includes DEIB, safety and wellbeing, CSR, volunteering and community, as well as our work around our employer brand, culture, values and our commitment to being a Great Place to Work®. For other businesses this might include improvements in working conditions or negotiations for fair pay throughout their supply chain.
The Governance scope of ESG
This is the part that ensures that these strategies and action plans to make the world a better place don’t just get lost during day to day business. Good Governance ensures that your strategies are baked into the way your business is getting done. Governance is often data driven and includes policies that protect your strategies, like a code of conduct or a robust reporting structure that keeps things in check. Or maybe you have individuals in the organisation who are responsible for ensuring compliance. Every business will do things differently, but this is the part of ESG that holds everything to account, provides transparency, and gives evidence that supports the story you go on to tell. In our agency, our approach to Governance includes our commitment to the B Corp framework. This includes our annual impact report, as well as a series of policies and codes of conduct we maintain to hold ourselves accountable to the highest of ethical standards. We also have external partnerships with organisations like Planet Mark, who calculate and validate our carbon emissions. For other businesses this might include work to reduce corruption and bribery, increasing Board level diversity, or improving executive remuneration transparency.
The breadth and depth of what each business is doing under each of these core headings might be different, dependent on the size of business, sector, impact they’re making on the planet, and the scale to which they interact with people. What is consistent regardless of the specifics of your business is that your stakeholders are increasingly expecting your business to look to protect the triple bottom line: people, planet and profit.
Why ESG is important
Preventing a climate crisis is everyone’s responsibility, as individuals, as consumers, we all must change our behaviour, but organisations yield a broader power in this. Businesses have the power to make significant changes to the products we buy, to the way waste is disposed of and to how materials can be recycled. It’s every businesses responsibility to reduce the negative impact they have, and to invest in innovating for a more sustainable and equitable future.
And no business operates without people. Even the most automated, AI driven tech brands are ultimately run by people, motivated, engaged, and united teams. People who understand and lean into the vision of the organisation. Focusing on creating cultural environments that are not just safe physically, but also psychologically, that are open and collaborative, fair and nurturing, is what attracts and retains the best talent and enables both the business and the people to thrive.
So, doing the right thing by both our people and our planet is fast becoming a licence to operate as a business, but does it also make good commercial sense?
The commercial case for ESG
The commercial case for investing in long term commitments to ESG is growing. What may have been seen as a noble investment for only the most ethical, purpose-led businesses, has now shifted towards indirect penalties for businesses who don’t invest. Those penalties come in the form of stifled growth due to less engagement from their customers.
You don’t have to look far (or Google for very long) to find the very real statistics that show how far today’s consumer will go to boycott a brand that isn’t seen to act in an ethical or sustainable way, and this is a global sentiment. Consumers are now choosing sustainable products over less sustainable alternatives, they are seeking to understand how businesses are run, they want to see that organisations are behaving fairly, and this is impacting their buying decisions. For ambitious organisations, how they communicate their ESG activities should be sitting at the heart of their growth strategies.
So, what does all this mean for communications professionals? To prove what really matters to your business, you’ll need a strong ESG communications strategy. Empty promises and surface-level activism won’t be enough. You need to live and breathe your principles to really make a difference, so it’s time to level up your messaging.
In our next blog we’ll focus on what ESG means for communications professionals, and how to start developing an appropriate ESG story. Get that blog straight into your inbox by signing up to our newsletter here.
And if you found this blog useful, then check out our webinar series on how to get ESG communications right.
