The Rise of ESG as a Business Imperative
According to a 2023 report by McKinsey, global sustainable investments exceeded $35 trillion, accounting for over a third of total assets under management. This trend shows that ESG is no longer a trend but finally a revolution in the management organization and evaluation of business.
- Environmental: While climate change has garnered a central position in global discussions, companies will be expected to reduce carbon footprints, adopt sustainable energy and manage resources more effectively.
- Social: Diversity, equity, inclusion, worker welfare, and community outreach have become important in establishing trust and brand equity.
- Governance: Sound judgment, ethical behaviour and following the rules of the game are fundamental for the success of sustainable business.
Why ESG Matters for Global Brands
1. Investor Confidence and Access to Capital
When making judgments, investors are giving ESG performance top priority. Last year, the largest asset manager in the world, BlackRock, disclosed that businesses will also have to take responsibility for their sustainability initiatives. Evidence for the positive impact of sustainable EGS (environmental, social, and governance) structures has been demonstrated to attract more capital investment and to have positive financial outcomes.
For instance, a 2021 MSCI(Morgan Stanley Capital International) study revealed that companies with high ESG ratings experienced lower costs of capital and better risk-adjusted returns compared to their peers. This trend underscores the financial benefits of ESG compliance.
2. Consumer Demand for Ethical Practices
NielsenIQ, 2023 survey showed that 73% of global consumers are ready to pay a premium for sustainable goods. For example, Patagonia and Unilever have been successfully able to develop customer communities that act as their advocates calling sustainability and social responsibility.
On the other hand, when companies fail to give attention to ESG matters they risk being boycotted, getting bad publicity, and sales dropping. For example, retailers such as those employing fast-fashion business models have been criticized for causing labor exploitation and environmental pollution, and as a result, consumers’ confidence in these companies has been shaken.
3. Regulatory and Legal Compliance
Regulation taken place at all levels by governments throughout the world is imposing tight measures to face climate change and social equity. Appointed by the Corporate Sustainability Reporting Directive (CSRD) of the European Union, necessitates the disclosing of the full spectrum of ESG information and applies to more than 50000 companies1. Similar to this, India and the US are currently also in the phase of ESG-based compliance framework implementation.
4. Talent Attraction and Retention
Future of work workforce intends to work for companies designed for a purpose. As pointed out in a 2023PwC survey, 86% of millennial and Gen Z employees take company ESG commitment to make a decision whether to work at or not. Marketers who are out of sync due to using their prized drivers will lose the ability to recruit great people to their companies.
ESG has been actively addressed by companies like Google and Microsoft, e.g., carbon neutrality up to inclusive workplace practices. These have improved the image of the company as a great place to work.
5. Resilience in a Volatile Market
Corporations with a strong ESG record best positioned to weather crises. Companies specializing in their employees’ health, their supply chains and their demonstrably responsible and transparent management performed well compared to companies that did not over the course of the COVID-19 pandemic.
How Global Brands Can Strengthen Their ESG Framework
- Set Clear Goals and Metrics: Companies are being made to set out quantifiable ESG targets, such as cutting emissions by a certain amount or generating equivalent numbers of women and men in the business’s top management team.
- Integrate ESG into Core Strategy: ESG cannot be an addon; it’ll have to be integrated into every part of the business, from the supply chain to the marketing.
- Leverage Technology for Transparency: Illustrative examples of how transparency in supply chains, e.g., with blockchain applications, and in environmental and social governance (ESG) performance (e.g., with AI data) can be enhanced.
- Engage Stakeholders: Open discourse in the company about ESG activities among investors, staff and customers builds trust and common values and activities.
- Stay Ahead of Regulations: Actively follow international ESG legislation to avoid fines and to brand the company as a market leader.
The Business Case for ESG
The numbers don’t lie. A 2022 study by S&P Global Market Intelligence found that ESG-focused companies had 25% higher profitability and 50% lower volatility than their counterparts. Concurrently, the ESG-high companies are more innovative and possess long-term value generating abilities.
For global brands, ESG is no longer negotiable—it’s a necessity for survival and success. As a society faces environmental, social and ethical issues, the companies and businesses following the ESG approach not only mitigates the risk, but also acts as catalysts creating new opportunities, adapt and lead, or risk being left behind.
