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Why environmental and social governance lays the foundation for sustainable business growth

Written by Nick Dormon on Friday, 06 August 2021. Posted in Insight, Analysis

Being successful in business isn’t just about what you do, it's how you do it.

Why environmental and social governance lays the foundation for sustainable business growth

Being successful in business isn’t just about what you do, it's how you do it. From attracting investors and employees to getting listed at retailers and bought by your consumers; the way in which you conduct business is always on the line. In fact, you can even gain competitive advantage by offering the same product or service as your competitors but in a more responsible way. 

CEOs like Paul Polman at Unilever realised that leading a business responsibly was not only good for the soul but good for the pocket and the reputation of the business. His now decade-old Sustainable Living Plan demonstrated that Unilever’s brands that had a true social and environmental purpose outperformed brands without.  Other corporations have been less dynamic, setting up lofty Corporate Social Responsibility objectives with little tangibility or connection to their staff and customers. This has led to the rise of ESG – Environmental and Social Governance. 

Boosted by Jim Carney’s view of the importance of ESG in relation to investment and risk, business is being judged by investors in financial and ESG terms, and ratings are playing an important part in quantifying responsibility in a way CSR never achieved.

At the other end of commerce, consumers are scrutinising brands in their desire to use their purchasing power correctly. In supermarkets, the front of pack is increasingly going to be the placard, or battleground, for brands to convey their purpose, moving from meaningless symbols on the back of packaging to integrated brand promises placed front and centre.

So, what does this mean for the entrepreneur? Firstly, there is a chance for significant advantage over established brands and their legacy supply chains with their complexity, rigidity and sometimes unaccountable tendrils. New businesses can build their supply chains from scratch ensuring each part complies with their ESG requirements. However, this is not always straightforward, particularly when scale is required and control becomes more difficult. Often, growing a business requires partnering with larger businesses with broad reach and large-scale sales and distribution networks, but with this comes potential ESG limitations. 

Thus a long-term strategy is required from the start. It would be unwise to build aspects of your ESG into your brand promise if you are unable to maintain it as you scale up. I recently read about a restaurant on a small island that boasted how they only used the island’s produce. This local traceability filled their tables to the point where they needed to import produce to feed everyone coming through their door, thus breaking the environmental spell. Another entrepreneur we were speaking to was developing a new sustainable woollen fabric and were determined to only use British wool, but this would mean a premium price that few could afford. So, would it be better for them to access quality and economical wool from elsewhere and focus on other sustainable aspects that were more attainable and maintainable?  After all this would make their products affordable, thus encouraging wider take-up, a stronger business model and ultimately a more positive impact on the environment.

There will come a point when ESG will be par for the course, like product safety, and will provide huge benefits to our peoples and planet, but with zero competitive advantage. In the meantime, there is a win-win-win to be had: a win for the customer and consumer, with a baked-in win for the environment, which will be a win for business.  

Various elements of ESG will need to be controlled like the sounds on a graphic equalizer. Those aspects of ESG that are critical to the offer and maintainable should be woven into the brand story. Those that are difficult to communicate, transient or partially successful act in support with a different communications strategy. For example, CO2 reduction is intangible and therefore tricky to communicate to end consumers. Removing artificial colouring was a passing trend that was important at the time but is now expected. Increasing recycled plastic anything below 100% is seen as a failure to the consumer but hard won by the technical teams. Each element is important and requires a different brand and communication strategy.

Moving to zero carbon energy has been a quick win for many businesses, sometimes by just swapping energy suppliers. Its impact to the environment will hopefully be significant but it’s intangibility for the consumer makes it difficult to sell in the brand story. However, removing all plastic from your packaging (a hot topic at the moment but often misunderstood) might actually be worse for the environment but remains a significant step forward in the eyes of the consumer. This is where true purpose becomes critical in defining your path and not be swayed by misinformation and fads. We like to think a true purpose is something the customer will put good money behind and will not need to shout its praises from the rooftop. Its opposite proves the point – greenwashing: minimum investment, maximum noise. True purpose should drive ESG, not marketing. However marketing should take full advantage of efforts made as it is intrinsic to a brand’s offer and is important to the end customer. After all, if green brands are more successful, then their impact on the planet will be greater. 

There is a useful infrastructure to support building for ESG development with an increasing number of rating agencies, specialist consultants, new offers in management consultants, advertising agencies and design companies who can guide you through the process. When you start out, funding will likely be limited and other needs may seem more pressing. Yet, laying sound foundations for sustainable growth will pay for itself many times over in the future, not just financially but on your conscience as well.

About the Author

Nick Dormon

Nick Dormon

Nick Dormon is managing director of brand design and innovation agency Echo

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