December 13, 2023
ESG: A Guide for CMOs

Sustainability is not a new topic, but the rise in social and cultural awareness in recent years has made it more important for businesses to make it a goal.

Consumers are demanding that corporations take action and incorporate corporate social responsibility into their operations, and firms must respond or face repercussions.


ESG (Environmental, Social, and Governance) has become a major emphasis in both the corporate and investing worlds during the past decade. However, sustainability is crucial to more than just investors. Environmental preservation, social justice, and ethical management are becoming more important to customers, particularly millennials. 


Morgan Stanley reports that 86% of millennials are interested in sustainable investment, and a Sustainable Brands survey indicated that millennial investors are more willing to incorporate sustainability into their purchase behavior. As millennials become workers, shoppers, and investors, they are noticing and rewarding excellent company behavior. According to a survey by BoF and McKinsey, 60% of global millennials are willing to spend more money on businesses that show they care about the community.


Given the importance of ESG to stakeholders, it's vital that you, as a marketing leader, assess what you're doing to elevate, communicate, and sell your company's ESG narrative. While most businesses are aware of their overall brand image, taking into account the specific reputation effect connected with ESG can bring additional opportunities to both defend and develop your brand.


How ESG could aid in the development of your brand

Companies are constantly scrutinized by investors and consumers alike in an age of social media and 24-hour news, from their investment selection process to their workers' health and wellness perks.

Companies are constantly scrutinised by investors and consumers alike in an age of social media and 24-hour news, from their investment selection process to their workers' health and wellness perks. While the concept of sustainability is not new, integrating ESG activities, strategies, and reporting into a fundamental business model is becoming increasingly vital to businesses. By focusing your marketing efforts on the company's sustainability goals and making sure the story is told correctly, you will build more brand loyalty and value.

Marketing teams who understand the need to convey proactive and integrated ESG policies and outcomes will have an advantage over their competitors. To build the firm's brand, consider highlighting advances in labour conditions, workforce diversity, community service, and taking a position on environmental and social justice concerns.


ESG is essential to the company's mission

When the company is making a decision, ESG priorities provide a guiding light.

When faced with a fork in the road, businesses typically ask the standard questions: "What are our competitors doing?" "Should we be the first to give it a shot?" "What if we don't succeed?" They then inquire, "Is this compatible with who we are and why we are in business?"

When the ESG storey is ingrained in the firm's mission, it begins to appear in everything the organisation does. This includes how it acts under duress and in times of crisis. These acts and answers are not only regarded as genuine but have a long-term beneficial influence on the brand and stakeholders


Supply chain decisions are influenced by ESG priorities

These organisations understand that by being open about how they source and buy, they can build a sustainable supply chain and increase customer trust in their brand.

Even today, many organisations continue to engage in understanding solely about their direct suppliers, rather than the many downstream vendors to which their suppliers are related. However, it is in their best interests to ensure that the entire supply chain is made sustainable. This results in resource conservation and cost savings on the one hand, and regulatory compliance on the other, minimising the chances of negative, punitive regulatory outcomes and the related reputational harm.

We are all aware of the high cost that certain retail and manufacturing businesses have had to pay when procuring from suppliers whose attitudes towards human rights do not exceed the international standards that must be adhered to across the supply chain.


ESG is an essential component of the employer brand strategy

By 2017, millennials accounted for the majority of employees in the United States, and by 2030, millennials (Gen Y) and Gen Z talent are predicted to account for around two-thirds of the labour force. When it comes to running a sustainable business and all that it implies, they are going to expect a lot more from employers.

With ESG performance becoming increasingly important for improving employee retention and attracting potential employees, no company can afford to ignore the issue. In fact, even before the epidemic, Fortune's 2019 Best Companies to Work For had ESG rankings that were 14% higher than the worldwide average. Companies that have more contented employees are almost always ESG-strong achievers.


The emphasis on ESG adds value to shareholders

The ordinary shareholder invests extensively, and for the long term, in diverse funds. These investors profit less from a single quarter's earnings and more from the long-term, predictable value earned through interventions such as staff productivity training, promoting eco-friendly operations, and developing company policies that are fair and consistent with regulations.

Moreover, research has shown that ESG performance is strongly connected to greater EVA margins, EVA spreads, and return on invested capital, whereas increased stock volatility is associated with poor ESG performance. As a result, it makes good business sense to actively promote shareholder narratives that celebrate brands that better reflect the values of the people who own the company.

Marketers who actively push and encourage action in these areas, looking for a balance between profit and purpose, are better able to build brands that pivot to become first among equals. Businesses that want to stay relevant to consumers must adopt ESG priorities.

Developing transformative innovation

Product innovation is exploding as a result of commitments to sustainability and ethical supply chains. The CMO's function has traditionally been to support new goods with 'back end' marketing such as branding, communications, and, to some extent, price. Despite the fact that CMOs are increasingly involved early in the process and contribute to product creation, the long-term CMO feeds knowledge and insight into the innovation pipeline.


For instances:
  • P&G, for example, developed the first enzymatic detergent that works in cold water, removing the need for users to boil their water and saving energy consumption.
  • By focusing on appearance and quality, Tesla boosted the worldwide market for electric vehicles enormously, making an otherwise "dorky" alternative aspirational.
  • Fly leather, a novel material manufactured from recyclable natural leather fibre that Nike claims have the lowest carbon footprint of any leather material ever developed, was introduced in June 2018. Nike's Air Jordan and Air Max sneakers are made with the material.
  • Impossible Foods creates plant-based meat and dairy alternatives by synthesising a duplicate protein molecule seen in high amounts in animal flesh. People know about the Impossible Burger because it looks and tastes like real meat while cutting down on the environmental impact of making animal-based food.

The relationship between ESG and value development is undeniably strong. Across the bottom and top lines, five levers, in particular, may make a difference. Leaders should keep such links in mind in a world where environmental, social, and governmental challenges are growing more pressing than ever.

Companies that recognise the inherent benefits of innovating because of, rather than in spite of, sustainability commitments outperform their competitors.


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