Responsible Companies and ESG
Read Time: 5 Minutes
The best companies in the world work to build trust. No matter what one of these companies sells or produces, trust is its most important product. Trust is earned by listening to employees, shareholders, and customers and by building up the communities in which they operate. A truly responsible brand pursues strategies that improve the outcomes of all its stakeholders.
That can be a challenge. Constituent needs have become more complex and consider problems like the effects of climate change, increasing inequality, and a slowing global economy. Corporations also face regulatory headwinds and a litany of judicial pronouncements.
What Are Responsible Corporate Brands Doing About ESG?
First and foremost, a responsible brand accepts the need for change. It understands why it must address major global and societal issues.
Responsible companies put governance structures in place to develop and execute relevant Environmental, Social, and Governance (ESG) strategies. Increasingly, corporations are assigning dedicated ESG committees to their boards of directors. These companies also assign responsibility within the senior management for ESG, in some cases at the level of the CEO, but often as a Chief Sustainability Officer, a Head of Investor Relations, or a CFO.
A responsible brand places a greater focus on resource use efficiency. It embraces circular economy practices that minimize waste and extend duration across product life cycles. This practice has the effect of de-risking as much as possible the volatility in raw material and commodity prices. For example, many companies are beginning to attach a cost to natural resources, including carbon.
These companies also recognize that many ESG enhancement measures are no-regrets measures that require little by way of capital investment. Investments in renewable energy or energy efficiency improvement offer good examples of this. The business reaps the benefits of lower energy costs and helps to meet environmental goals.
ESG Across the Supply Chain
Such businesses include their supply chains in their progressive actions as well. Micro, small, and medium-size enterprises that form a significant part of supply chains currently account for a large percentage of resource consumption. Supply chain participants, therefore, must be more compliant with emerging audit protocols that discourage the outsourcing of dangerous and dirty business by companies to their suppliers.
ESG and Innovation
Responsible corporate brands constantly innovate and pivot their business models to find a competitive advantage. For instance, when India’s Tata Power found itself on the receiving end of portfolio decarbonization initiatives by major sovereign investors, it pivoted toward renewable energy and away from coal-fired thermal power.
ESG and Social Responsibility
Responsible brands also endeavor to improve diversity within their workforces. Such businesses recognize that even beyond adapting to the social context in which they may operate, many of the actions required to be responsible help to strengthen a culture of innovation and transparency. Such organizations also often demonstrate a heightened awareness of their responsibilities toward the welfare of local communities. Responsible brands often leverage their statutory corporate social responsibility (CSR) spending obligations to become neighbors of choice. They also champion corporate volunteering by their employees, which enhances employees’ pride in their employer and improves employee engagement. This also helps deliver powerful social outcomes from their employees’ skill sets.
Linking ESG and Executive Compensation
The best brands — global leaders, like Microsoft and Salesforce, and Indian market leaders, like Marico — are now linking ESG performance on critical issues like carbon emission reduction and workforce diversity improvement to appropriately benchmark executive compensation.
Linking senior executive compensation to ESG outcomes forces the pace of change. Integral to the link with compensation is, of course, a strong focus on measuring ESG parameters that are material to operations and making transparent disclosures.
Responsible corporate brands understand that ESG initiatives are becoming a critically important measure of their performance. These brands architect strategies that span the material ESG issues that impact their businesses. They put in place the proper governance, transparently engage with all their stakeholders, and take their feedback to further improve their performance.
Key elements of such a strategy require alignment within the enterprise between the core purpose or mission and the organization’s values and vision. If you expect to run a values-driven organization, your people must buy into the mission. Robust internal processes and controls also play a critical role in allowing employees and businesses to conduct themselves in a values-driven manner.
Transparency and Communication
There must be transparency and authenticity in the outreach to all stakeholders. A brand will lose trust at the first evidence of greenwashing.
Next, the communication strategy must embrace cross-functional collaboration, because ESG touches so many different parts of every organization.
Finally, the branding and communications teams must embrace the media as an ally in their efforts. The media offers platforms for critique, protest, and social change. If not enlisted as an ally, the media can become a major antagonist and threat to the sustainability of an organization’s operations. In many areas, the interests of responsible businesses and the media can converge and promote sustainable consumerism, catalyze government action, and nurture engagement with communities.
The media also helps to shape investor sentiment about an organization. By leveraging the media’s strengths and building a harmonious relationship, responsible brands can stay at the leading edge of ESG issues.
In summary, ESG offers a critical lens through which stakeholders can review the sustainability of a business. Consequently, a host of influential stakeholders, both domestic and foreign, are demanding accountability and driving ESG-linked change. The companies that embrace this evolution alongside good governance practices will continue to thrive and grow.
About Mukund Rajan
Mukund Rajan is Chairman at ECube Investment Advisors. Before this, he held the position of Chairman of Tata Global Sustainability Council, Chief Ethics Officer, and Head of International Operations while working at Tata Sons Private Limited. He has held a variety of positions at Tata, including the first Brand Custodian and Member of the Group Executive Council and Managing Director. Mukund completed an M.Phil. and a D.Phil. in International Relations from the University of Oxford and a B.Tech in Chemical Engineering from the Indian Institute of Technology, Delhi.
This ESG article was adapted from the GLG Webcast “The Making of a Responsible Corporate Brand.” If you would like access to events like this or would like to speak with ESG experts like Mukund Rajan or any of our approximately 1 million industry experts, please contact us.
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