ESG: DO YOUR CUSTOMERS AND EMPLOYEES CONSIDER YOUR ESG SCORE WHEN MAKING DECISIONS?

ESG or environmental, social, and governance criteria have long been a measuring stick for social-minded investors. But, are consumers and prospective employees using ESG to inform their purchase and employment decisions? Here are our thoughts on it.

ESG was the result of a 2005 United Nations study, “Who Cares Wins.” The monumental study was part of an effort to establish a link “between environmental, social and governance issues and investment decisions” to “contribute to better integration of these factors in investment decisions which will ultimately support the implementation of the Global Compact principles throughout the business world.” ESG criteria help investors understand where companies stand on climate change, human rights, racial equality, transparent business practice, and female representation. Since ESG entered the mainstream, organizations like the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) have developed standards to measure ESG criteria.

While there is some debate as to whether ESG creates value, consumers, and employees are paying attention. The underlying criteria of ESG are definitely factors you need to consider in your marketing and your product offering.

A 2018 ESG Investor Sentiment study conducted by Allianz suggests that only “15% of people know what ESG is and what it stands for.” Even if consumers aren’t familiar with the technical investment terminology and measurement tools, they are considering your company’s stance on ESG topics before making a purchase decision. Employees, especially Millennials, are looking to work for companies that align with their values, bringing ESG criteria to the forefront of the hiring and recruiting process.

Environmental

Since the turn of the century, environmental issues have become increasingly important topics for consumers. Climate change, pollution, and sustainability are reshaping our shopping habits. Though convenience and price are still the primary factors influencing choice, environmental impact carries more weight for consumers around the globe. As you might expect, Millennials (ages 21-34) are leading the environmental charge, but Baby Boomers (ages 50-64) aren’t that far behind. According to a 2018 Nielsen study, 85% of Millennials said: “that it is ‘extremely’ or ‘very’ important that companies implement programs to improve the environment.” Compare this to the 72% of Baby Boomers who agree.

Sentiment is one thing, but are consumers putting their money where their values are? Yes.

When we look at the consumer packaged goods (CPG) industry, sustainability-marketed products are growing faster than conventional products. A study conducted by the NYU Stern Center for Sustainable Business found that sustainability-marketed products:

• Delivered 50.1% of packaged goods market growth between 2013 and 2018.

• Delivered $113.9B in sales in 2018, +29% since 2013.

• Grew 5.6x faster than products not marketed as sustainable.

• Account for 16.6% share of market, up from 14.3% in 2013. Source: Sustainable Share Index™ 2019, NYU Stern Center for Sustainable Business

Consumer product goods companies are listening. The largest CPG companies are committing to a more sustainable future.

• Nestle committed to 100% recyclable or reusable packaging by 2025.

• P&G committed to achieve 100% recyclable or reusable packaging by 2030.

• PepsiCo strives to design 100% of packaging to be recyclable by 2025.

• Unilever committed to making all its plastic packaging fully reusable, recyclable, or compostable by 2025.

• Anheuser-Busch InBev committed to 100% returnable and majority recycled packaging by 2025. Source: Top-25 Sustainability Commitments, Consumer Brand Association

While everyday consumers may not be reading the same ESG reports as socially responsible investors, they are certainly trending towards brands that align with their environmental values.

Social

Social, the S in ESG, covers human rights, community well-being, health and safety, and employee relations. In the same vein as environment, consumers expect social responsibility from the brands to which they pledge their loyalty.

According to a Cone Communications Millennial CSR study, 90% of Millennials “would switch brands to one associated with a cause” compared to the U.S. average of 85%. Generation gap aside, 85% is a staggering number for the population as a whole. Considering Millenials make up the fastest-growing segment in the marketplace, their preferences should not be ignored.

The 2020 pandemic brought social responsibility to the forefront, with millions of Americans looking to trusted brands to help them through the challenging times.

Brands need to do more than include their social initiatives in their statements and messaging. Younger generations who grew up with the 24-hour news cycle and complete access to the internet all the time require proof that your company is a benefit to society. Companies that leverage their social good are authentic, transparent, and deliver measurable impact.

Governance

Governance in the ESG sense is how corporations provide a structure to govern themselves, comply with regulations, make decisions, and stay true to their stakeholders - employees, customers, and shareholders alike.

Facebook’s mishandling of personal data in the Cambridge Analytica scandal and Volkswagen’s emissions scandal are two examples of corporate governance failure.

Since 2003, much has been committed in the way of research to measure governance better. A number of indices have been developed to understand better how governance impacts performance, namely, the G, E, O, and D indices. But, concerning our question at hand, does a better rating on a governance index help with employee satisfaction?

In general, yes! By improving transparency and accountability in governance, today’s corporations are seeing improved employee productivity. Increased transparency has been shown to increase employee happiness, improve relations with customers, and smooth out operations.

Increasingly, Millennial and Gen-Z employees desire positions at value-driven and socially-minded companies. Corporations that focus on improving governance will attract future talent that value transparency over profits.

Are your customers auditing your Global Reporting Initiative (GRI) report before checkout?

Probably not.

Are they factoring in your carbon footprint, sustainable supply chains, and corporate practices?

Evidence is mounting that this is indeed the case.

Aligning your marketing with your ESG strategy can increase brand loyalty and awareness while simultaneously improving recruitment.

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Interested in how your customers inform their decisions? Start the conversation to find out!