Navigating the ESG landscape: A blueprint for sustainable success

In the ever-evolving business landscape, net-zero has emerged in recent years as a key focus in environmental, social, and corporate governance (ESG) reporting. The E in ESG focuses on environmental stewardship and demonstrates the performance of the company’s efforts towards climate change, sustaining natural resources, reducing pollution and waste and taking advantage of environmental opportunities.

This blog post explores net-zero, its financial impact, the strategic importance of ESG for businesses, implementation challenges, and the imperative for genuine commitment from organisations.

Consumer choices

Increasingly brands are witnessing a shift in consumer behaviour. Those with poor ESG scores see conscious avoidance from customers, while those making progress on these critical issues are actively sought out. Beyond the ethical case, organisations should care about ESG and forming a strategy because it can significantly impact the company’s financial performance in numerous ways:

• A brand that doesn't adhere to environmental standards may face tighter regulations, potentially impacting their profits.
• A brand that doesn't follow good social practices may suffer damage to its reputation, resulting in loss of customers and income.
• A brand with inadequate governance practices may be at a higher risk of encountering fraud or other financial issues.

Amid a rapidly increasing focus on ESG issues, companies embracing ESG signal their commitment to a positive societal impact. Implementing a strategy is a way for businesses to attract new customers, improve operational efficiency, risk management, and employee engagement.

Importantly, it's vital for brands to make sure their ESG approach is in harmony with the company's overarching business objectives. ESG initiatives can greatly influence the way customers view a brand, so it's crucial to ensure that ESG actions align with the company's desired image.

Organisations need to consider the financial costs and benefits. An upfront investment may be required to drive some environmental and social initiatives, but these can offer benefits in terms of longer-term savings.

Businesses will also need to consider how they will measure the success of an ESG strategy. Performance indicators could include things like employee engagement, customer satisfaction and decrease in energy consumption. By identifying key metrics upfront, an organisation can gauge whether or not the ESG strategy is genuinely compelling (and effective!).

Implementing an ESG strategy can present a challenge for several reasons:

• There is often a lack of data and transparency around environmental and social issues, making it difficult to set clear goals.
• ESG initiatives can require a significant up-front investment, which can be a barrier for businesses with limited resources.
• Finally, changing business practices to align with an ESG strategy can disrupt employees and customers.

Despite these challenges, there are many ways that businesses can overcome them:

• Partner with organisations / suppliers with expertise in specific ESG issues.
• Utilise information from social media and various other platforms to understand customer opinions on ESG issues.
• Develop phased plans to implement new policies and procedures.

In today's business climate, organisations are also likely to face a challenge with greenwashing and may get caught out. It’s no longer sufficient to simply release a statement saying ‘we’ll be net-zero by 2030’. Brands must instead actively demonstrate they are addressing the risks and challenges by implementing a realistic strategy. It is essential to have a clear plan made public and one that people will buy into – so everyone can see genuine progress.

As businesses get to grips with the expectations of customers, investors, and other stakeholders, the focus will need to shift to tangible action. Data and infrastructure can present key challenges. Regulatory demands mean increasingly organisations must disclose ESG information, and this can include giving rating agencies and external stakeholders access to the information. Brands must ensure they have the correct data and are set up to monitor and report consistently. In short, it’s important to embrace ESG authentically and transparently.

A survey of more than 1,000 businesses globally from data management firm Hitachi Vantara, including more than 100 UK firms, found that 82% now have net-zero carbon goals in place. The survey found, however, that the goals do not necessarily translate to strategies or implementation plans, with 34% of businesses claiming they were yet to put plans in place to reach their goals.

Here’s what some prominent global brands are doing in terms of their ESG strategies:

• Global outdoor apparel company Patagonia has set a target to become carbon neutral across its entire value chain by 2025. To achieve this goal, the company is working with its suppliers to reduce their emissions, investing in renewable energy and carbon offset and carbon capture projects. Patagonia has also committed to using 100% renewable energy in its own operations by 2025.
• Global food and pet care company Mars has set a target to become carbon neutral by 2040. To meet this target, the company is teaming up with its suppliers to help them reduce emissions. Mars has also launched a Supplier Sustainability program, which provides support and resources to help suppliers cut emissions.
• Nike has set a target to become carbon neutral across its entire value chain by 2050. The company is working with its suppliers to reduce their emissions and is also investing in renewable energy. Nike has also committed to using 100% renewable energy in its own operations by 2025.
• Nexer helped our client Oatly make a huge transformation in a short amount of time. Oatly’s target is to reduce their climate footprint by 70% by 2029, and Nexer worked with them to create a sustainable solution that calculated, measured and managed their products’ footprints, utilised the same platform for PLM processes, enabled sustainability reporting and showed their product carbon footprint on consumer packaging.

Source: https://net0.com/blog/setting-net-zero-targets

ESG: Some key statistics:

• 78% of retail customers feel sustainability is important
• 50% of people want sustainable holidays despite higher costs (Booking.com)
• Products marketed as sustainable grew 2.7x faster than those that were not
• 84% of customers say that poor environmental practices will alienate them from a brand or company
• The environment is important to consumers but they put equal or greater importance on legislative, human rights and fair trade policies
• 80% of consumers are willing to pay more for products that are produced / sourced locally.
• 75% of sustainable goods sell better online than in store
• Sustainability is inextricably linked to trusting a brand more than a purchase decision
• Consumers aged under 30 are more likely to have seen and be influenced by sustainability messaging (61%) compared to over 30s (45%)
• 79% of people who hear brands communicating about sustainability are likely to trust that messaging (whether greenwashing or not)
• The following factors are likely to alienate a customer from a brand: poor ESG track record (84%), unsustainable packaging (83%), poor compliance (82%), irresponsible sourcing of materials (82%), poor human rights record 82%)
• A new generation of customers expects ESG to be at the core of a company’s purpose.

Sources: Sustainable Market Share Index, Global Sustainability Study, Global Consumer Insights Pulse Survey, PWC, McKinsey, GWI Consumer Insights

Time is running out for business leaders who don’t have a net-zero strategy. If a brand doesn’t have a plan for competing and winning in a net-zero economy, it’s time to make one. From a business perspective, the transition has already passed an inflection point.

The green transition to achieve net-zero targets by 2050 requires a complete overhaul of the world’s energy, transport and industrial systems, as well as the transformation of agricultural and forestry practices. It will require a lot of investment - much more than the world is currently providing - but it is not impossible. This unprecedented global economic transformation will have implications for investment, inflation and growth, as well as for policy decisions.

The world will have to undergo an unprecedented global economic transformation to achieve a zero-carbon economy, with implications for investment, inflation and growth, as well as for policy decisions. Younger generations are already leading the charge on this trend due to their heightened sense of social responsibility and commitment to environmental causes.

In conclusion, achieving true end-to-end sustainability solutions via an ESG strategy is imperative for brands. The journey involves identifying and addressing immediate goals while demonstrating courage in tackling longer-term challenges.

Key drivers to take action include responding to increasing legislation, contributing to global net-zero targets, preserving and enhancing business reputation, reducing long-term costs, attracting future investment, gaining a competitive edge, demonstrating responsibility, pioneering in ESG, fostering increased business, exploring collaborative opportunities, and uniting the company behind the net-zero challenge. Embracing these drivers not only aligns with environmental and ethical imperatives but also positions businesses strategically for sustained success in an evolving landscape.

If you have any questions, feedback or wish to share ideas on the above, or sense there may be a business opportunity, please reach out to me:

gordon.ellis-brown@nexergroup.com