The ESG imperative - why it's urgent for companies to engage

04 October 2022 Consultancy.com.au 7 min. read
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Sarah Blanchard, Head of ESG at Prof Consulting Group, outlines why it’s urgent for companies to engage with consumers and stakeholders on ESG, and how they can successfully meet mounting expectations.

In 2030 global carbon emissions must have been cut by 45% and be at net zero by 2050 to fulfill the Paris Agreement. This will limit global warming to 1.5 degrees above pre-industrial levels and avoid the worst impacts of climate change.

Australia, for example, is warming above the global average which is culminating in extreme weather such as floods and droughts. Once seen as isolated, these extreme weather events are becoming increasingly frequent and are having severe impacts on our way of life.

Sarah Blanchard, Head of ESG, Prof Consulting Group

Consumer-led change

A new generation of climate and socially conscious employees will enter the workforce in 2030. These Gen Zs won’t be attracted by, nor stay long in companies who are not actively managing their environmental impact. Only one in five would work for an employer that doesn’t share their values and crucially, Gen Zs have high expectations of CEOS – 41% expect leaders to be actively solving social issues.

Companies must understand that it is equally important to safeguard the future as well as acting in the short term.

These employees will become part of a group of consumers who will have even higher expectations for brands to be responsible. We can see this is already impacting their decisions from what they eat, wear, how they live and move around – albeit they are not always willing to spend more on sustainable products.

Nevertheless, there is growing recognition that brands delivering on each aspect of the ESG (Environmental, Social & Governance) agenda resonate better with consumers and in some cases command a premium.

Opportunity tips the balance

While the risks of not engaging with climate and social issues are substantial, the opportunities are immense. Think about it as moving towards a world where businesses don’t pollute, waste is valued and key inputs such as energy are minimized. People would enjoy their workplaces and communities would be clean, fun places to live. It’s hard to argue with that.

Transitioning to a low carbon economy presents a significant investment opportunity. In Australia, this is estimated at $420 billion across the four main economic systems – energy, mobility, raw material manufacturing and food and land use (FALU). Contributing 16% of emissions and 13% to the economy, climate action in FALU is a recognized way to impact positively on the natural environment and livelihoods.

Further reading: Navigating the complexities of sustainability in the food sector.

Leading companies who acted early and focused on their triple bottom line by integrating ESG into their business process are seeing the benefits. Conversely, if companies don’t engage now, market share and customer loyalty could be significantly impacted as consumers move to more trusted brands. The future in 10 years for lagging companies could look very different.

There is a profound will for change

Change is not happening fast enough, and the investment community is demanding business leadership take full responsibility for their climate and social impact. In response, the ISSB is harmonising sustainability disclosure standards to help investors compare companies equally – in a similar way that international finance reporting currently does.

With this information, investors can allocate capital to those companies who are deemed not only financially secure but environmentally and socially responsible.

Impact investors are increasingly active, as the finance sector recognises the opportunity for ESG-focused businesses to deliver category leading success by connecting closer to today’s consumer.

Reading the signals from consumers and investors, regulators have become braver and are coming down strongly on greenwashing. Europe has the Responsible Food Business and Marketing Code of Practice and in the UK, the Advertising Standards Authority is pulling up high profile brands for misleading the public with their unfounded green claims in food.

In Australia we already see a similar approach from the ACCC. Consumers are increasingly savvy towards false claims as illustrated in the USA by a class action lawsuit against a clothing brand for falsifying sustainability information.

As well as fines, the reputational damage for overstating claims or delaying climate action can be hard to overcome. Creative firms are increasingly conscious of the clients they work with and the potential negative association with poor sustainability performance.

NGOs continue to expose corporates’ sustainability performance to a deeper level for example, sector benchmarks of companies in agriculture and food. Some investor groups are backing NGOs demands for standardised and mandatory metrics.

Companies must look at their impact beyond their own operation and eyes are on the upcoming EU Corporate Sustainability Due Diligence Directive which will determine how companies manage their supply chains in Europe and abroad. Crucially, SMEs as well as larger companies will be affected.

Getting to grips with complexity

Amplifying these drivers are breakdowns in raw material supplies where shortages caused by war and drought are affecting product recipes. Procurement and product development teams are having to approach sourcing in an agile manner whilst figuring out how to secure supplies closer to home.

While consumers and key stakeholders demand clearer and accurate ESG information, the complex network of supply chains makes transparency difficult and hinders genuine efforts to support sustainability improvements and communications.

Businesses are also having to grasp new sustainability concepts and language such as ESG, circular economy, social welfare and Scope 3. Understandably, many businesses stagnate, not knowing where to start.

The deepening economic crisis and instability has placed many firms in survival mode, but the challenges we see are not insurmountable. Those companies who manage their resources carefully, who understand the new consumer deeply and help them live sustainably, stand to win.

How Prof Consulting Group helps

At Prof Consulting Group we focus intimately on the consumer and our ESG team is there to help business’ answer the new consumer demands for responsibility. This can be a challenge for our clients who say that they don’t know where to start nor what to prioritise.

But working alongside them, we help our clients to understand ESG and its role in their organisation. We assess their current position and guide them to set sector relevant targets while gaining essential senior leadership support.

Our services include development of sustainability strategy and plans, engaging employees and suppliers to help implement them, assessing sustainability including on-site assessments and follow up actions, optimising supply chains, innovation and product development. Specifically focussing on agriculture and food sustainability our expertise includes animal welfare, social impact and human rights, food safety, packaging, carbon footprint and labelling.

Through our network of associates and partners we can help companies on their sustainability journey no matter what stage they are at. We believe that regardless of scale, all businesses can make a difference now and for the future.