Rather than undoing years’ worth of progress, brands must double down on ESG strategies that can (and will) continue to bear fruit.
Fears of an impending recession have surely made many corporate leaders start to question the value of their environmental, social, and governance (ESG) initiatives. Obviously, any economic turmoil tends to breed uncertainty; and, in response, businesses typically retract into fear-driven mentalities — focusing on the fundamentals and tightening up spending. Before long, some of the less “business-centric” activities start to get defunded. But ESG is different and smart executives shouldn't be so quick to make the cut.
Historically, a comprehensive ESG strategy has always been viewed as a “nice-to-have” add-on that’s less directly connected to other efforts for driving business growth. But that outdated perception is simply no longer the case — a recent Forrester/Dun & Bradstreet study found that not only does improved ESG performance drive profit, but failing to meet ESG goals leads to an increase in operational and financial risk.
Even news that ESG stocks are getting battered is tempered by the revelation that ESG equity funds have done better this year, on average, than their non-ESG counterparts. Also, while the tech sector has been hit hard by the recession due to investor demands from pre-revenue companies, large multinational industries have continued to focus on sustainability and other areas of ESG where they know they are weak. Regardless of the recession, they know they have to do something, as the risk of doing nothing is too great. This momentum means that holistically and effectively integrated ESG strategy and deployment inside organizations may very well be recession-proof.
The truth is, ESG strategy is a welcome evolution from bolt-on, Corporate Social Responsibility (CSR) thinking that prevailed in the previous decades. Developing a clear ESG strategy and a holistic plan to execute this over time becomes a powerful tool for innovation and business transformation — so long as organizations realize that it’s about how closely ESG is tied to the entire business, not just to the marketing or communications department.
Finding the balance
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Every successful organization knows the importance of balancing near-term and long-term needs. But under the pressure of a recession, the right mix might not be clear. ESG investment and focus are often judged by their perceived short-term costliness — despite the fact that, in the long run, it tends to pay off as technological scale increases.
For example, when UPS made the switch to electric delivery vehicles, it was because its electric delivery vehicles finally had the same up-front cost as its gas models. Yet, with some long-term thinking, UPS could have earned even greater savings and lower emissions sooner, as years earlier EVs were a better deal over the lifetime of the vehicle, with much lower operating costs and higher uptime.
It’s important to remember that a solid ESG strategy is a long-term play. ESG is not a quick fix or seasonal. It should be strategic, always lean towards business innovation and rely on broad buy-in from all stakeholders throughout the journey. This is why ESG messaging must be constant, authentic and consistent — as well as unique and accessible — in order to rise above the noise and potential criticism. Hitting all of these right notes takes a significant investment of time and resources that might have historically deterred attention from leaders; but the focus and pressure from all stakeholders on positive ESG performance continues to increase — so, those that stay the course stand to gain a big advantage as we emerge from the other side of this downturn in the market.
Reaping the benefits
When a rock-solid ESG strategy is aligned with the business, then brand and innovation opportunities pop up — from collaborations with partners that lead to new products and services, to market expansions, to future-proofing existing efforts as policies and priorities shift towards ESG.
In some cases, economic uncertainty makes a focus on ESG even more urgent. For example, when it comes to their employee base, organizations need to attract and retain talent through both bullish and recessionary environments. How they are walking the talk and fulfilling their purpose becomes more important. ESG strategies that don't ignore the “S,” such as Gildan’s Made with Respect platform, put people first across a supply chain and allow companies to retain and attract talent.
A recessionary commitment to ESG can also spur innovation that has a lasting positive impact. Nike was able to bring real innovation into how its design teams build out products through the lens of sustainability with the launch of “Move to Zero” — its ambitious effort to move towards zero carbon and zero waste to help protect the future of sport. To date, it has already resulted in lines of products made from recycled materials and (as importantly) more sustainable approaches that have lowered both shipping costs and supply chain emissions.
ESG focus can be a long-term value creator, as long as a brand has an ESG strategy that is closely aligned with its business goals as much as with the stakeholders it serves. With this kind of strategy, making real progress on ESG becomes easier, more streamlined and more cost-effective in the long run. As the recession threatens to put some ESG plans on hold, the risk is not only to the planet, but to businesses who will only end up spending more time and money when they eventually pick up where they left off. The race to a more sustainable future won’t stop in the face of recessionary fears, so company leadership must commit to an “always-on” mindset on ESG or risk falling behind.