Environmental, Social and Governance
Last week we delved into the world of CSR (Corporate and Social Responsibility) - make sure to check that blog post out here. Growing on that concept, I’d like to bring ESG (Environment, Social & Governance) into the mix. These factors give light to the social responsibility (see the tie in?) of a company or business.
ESG considers the three factors housed in its name, evaluating what effect they will have on a company’s ethics, sustainability and overall financial health. The examples we shared last week (H&M ReWear, L’Occitane’s recycling program, and Patagonia), demonstrated how consumers are more conscious than ever when making their purchases. In ESG, however, the scale becomes larger - investors are more focused than ever on putting their money into companies that are “doing good things” for our planet.
Here’s an overview of the three categories ESG brings under its umbrella:
Environment - how big of an impact does a business have on the environment?
Does a company recycle? Leave a large carbon footprint?
What are their manufacturing processes? Is there a lot of waste production?
Are they depleting resources? Wasting water?
Social
How well does a company treat their clients? Their customers? Their employees?
Is their employee base racially diverse? LGBTQ+ allied?
Do they give back to their community? Donate? Run volunteer programs?
Governance
How does the company drive change? Do the shareholders interact with leadership?
Do they partake in illegal activities?
Do they fairly compensate their employees?
Now, think about your personal spending and investment habits. When you’re planning to buy a pair of shoes, do you think about how those shoes were made, who made them, and what is going to happen to them when you’ve finished using them? Hopefully the answer was yes, all of those factors come into play when you are making your decision.
Further than that, let’s think about how ESG plays a part in investing. Before giving a company millions of dollars, investors want to know the answers to all of those questions, too. ESG gives investors the power to make informed decisions when determining who they will support, they can compare the ESG strategies of one brand to another, and pick the companies that align with their values the most.
Studies have shown that everyday investors are also shifting their mindset to include ESG factors in their own investing habits as well. Again, I’ll reference Patagonia here. 10 years ago, many people would have scoffed at their prices (I know I did), but now, people want to spend their money wisely, and see that their purchases are contributing to a greater good.
Next week will focus on how to share your ESG strategies with your audience, and build a marketing plan that demonstrates your dedication to ESG. As consumer education surges it will become increasingly important to put ESG at the heart of your brand’s marketing to build trust and confidence.
Written by Katie Burcea