Last November, world leaders, policy makers and scientists met for Cop26 in the wake of the IPCC report - a stark warning on how the world needs to do more to combat climate change.
Since Cop26, awareness around sustainability has significantly shifted and companies have been under more pressure and scrutiny to align. Shareholders can no longer be silenced simply by profits but instead expect companies to live and breathe their principles.
How ESG is different from CSR
Whilst companies have been grappling with corporate social responsibility for years, ESG differs in that it specifies ecological preservation and social wellbeing, as well as requiring companies to report on their commitments and targets.
Many companies are executing this through establishing sustainability performance targets, with investors using ESG ratings to assess a company’s commitment. In turn, these assessments can help companies advocate internal change, as well as highlight specific areas of weakness and strength.
The business case
The case for ESG is strong, as it has been shown to increase revenue and performance on the bottom line. In fact, McKinsey reported that ESG strategies can impact operating profits by as much as 60% - indicative of the increased cash flow that onboarding with an ESG agenda can unlock.
Similarly, PWC found that 76% of consumers say they will stop buying from companies that treat the environment, employees, or the community in which they operate poorly. This represents a shift in consumer appetite - one that needs to be communicated accurately and effectively.
By investing in an ESG communications strategy, companies can communicate their values to investors, as well as portray complex ESG messages to their audiences.
The value of the right comms
Companies that do not invest in a communications strategy open themselves up to increased risk, which in turn can negatively impact the company’s finances and reputation. Companies including Lipton Iced Tea, Oatly and Innocent Drinks have all had their adverts banned due to greenwashing and misleading customers with their claims. This cap on their media exposure will certainly see profits dive.
However, through an ESG communications strategy - risks like these could be identified, managed and mitigated.
As well as mitigating risk, a well-defined communications strategy can increase investor interest and manage existing shareholder relationships. According to HSBC’s 2021 Corporate Risk Management survey, investors are increasing considering ESG criteria in their decision-making framework - likely due to the correlation between high ESG scores and a higher market value.
The business culture shift
Moreover, growing awareness around ESG and sustainability is not just amongst consumers and investors, it’s part of a wider business culture shift. This is where the social aspect comes into play as employers are being scrutinized for how they treat employees and their individual pledges towards diversity and inclusion.
From large corporates to start-ups, no company can avoid the business case for ESG and the increasingly important role in the transition that companies today play. And with ESG set to only gain momentum on the news and corporate agenda, companies that do not invest in ESG communications risk losing out to a company that has.
Written by Laura Salvage, communication management specialist at PR firm The PHA Group
You can read latest news from PRmoment on ESG here and in this feature, PRmoment explores what PR can do to help the climate emergency.
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