An unknown entity only a few years ago, ESG has now firmly established itself as part of the modern corporate lexicon. The burgeoning focus upon environmental, social, and governance issues reflects mounting public concern over climate change and inequality. In turn, businesses of all sizes and in all sectors are under pressure to prove they can be part of the solution - rather than part of the problem.
Accordingly, ESG has become big business, approaching three trillion dollars’ worth of ESG assets now under management worldwide. Chief Sustainability Officers (CSOs) are now a staple of many boardrooms, and there is no shortage of companies offering to help clients navigate this new landscape.
But there also appears to be no shortage of scepticism about the benefits of prioritising sustainability and equality. Those rolling their eyes typically point to examples of greenwashing and what the Economist aptly characterised as the ‘veritable acme of inconsistency’ of ESG ratings agencies. The sector evidently has a lot of work to do, not least in improving the way it measures impact and return on investment.
But its detractors often tend to miss the broader point. The scale and complexity of the challenges we face will inevitably require businesses to play an active role. However, companies that are leaders on ESG are not just helping to make the world a better place. They also tend to make themselves more profitable, better able to attract investment, top talent, and new customers. ESG performance is now considered as a key criterion by two-thirds of investors, while as many as 86% of people want to work for a firm that is committed to solving today’s environmental and social problems. Meanwhile, half of all companies looking for a new supplier cite better ESG credentials as their leading motivation. Consumer trends are shifting too. 70% of consumers say they would pay a premium for products they knew to be responsibly sourced, while two-thirds of consumers report that they would switch to an unknown mission-driven brand.
For former Unilever boss and ESG doyen Paul Polman, the question facing today’s corporate leaders is a simple one: ‘Is the world better off because your business is in it? Or not?’ Whilst the ESG sector is still in its infancy and far from perfect, it remains an invaluable framework. One that will evolve and iterate, steadily improving, no doubt with countless missteps along the way. That is what progress looks like. It isn’t linear. It’s messy. But it’s progress all the same.