When you’ve been in business for as long as I have, you’re bound to see a lot of change. Throughout my career, I’ve had the opportunity to work for several companies, each with their own idea of purpose. Early on, however, most businesses were concerned purely with profit, no matter the impact to the world around them. Over time this changed as consumers began to pay more attention to the broader impact of corporations. The buying power shifted. Today, consumers use their dollars to support companies that align with their personal values around sustainability and social progressiveness.
Companies quickly realized they had to do more. They had to ensure their business was operating with a conscience. This shift in focus to strong environmental, social and governance (ESG) initiatives has been gratifying to watch. ESG-focused businesses are winning, and it’s heartening to know that more and more companies are using their resources and influence to instigate positive change.
ESG evolved from the concept of the triple bottom line, “People, Planet and Profits,” which was coined in the 1990s. As socially-responsible investing has become a top priority for investors, companies realized they needed to focus on each of the three Ps. As I mentioned, this pivot to focusing on ESG did not happen overnight. It’s been largely motivated by consumers and investors who demand change. The companies that continue to succeed in the future of business are those that see ESG not only as an obligation, but rather as an opportunity. The truth is companies that do not prioritize ESG strategies will be left behind.
You may ask why ESG is so important. Why is a business’ profitability alone no longer enough to woo investors? Let’s take a look at three ways that robust ESG strategies make businesses stronger and more resilient.
Strong ESG initiatives give companies a competitive edge
Companies that can adapt to changing environmental and social conditions are better able to identify opportunities and meet challenges. Proactive ESG policies can set a company apart from its competitors.
One of my favorite examples of this is Starbucks gaining a foothold in the Chinese market after struggling to do so for years. To do this, they decided to offer healthcare to their employees’ parents. By considering the needs of their stakeholders and demonstrating commitment to employees and their families, Starbucks was able to thrive in China. After implementing this policy, Starbucks’ sales in China skyrocketed, and they now have 5,000 stores in one of the fastest growing markets in the world.
Companies that improve labor conditions, build diverse teams, and give back to their communities will strengthen their brand. Millennials and Gen Z in particular care more than previous generations about social responsibility and will reward good corporate players with their loyalty.
Socially responsible companies attract and retain top talent
Companies that are committed to environmental sustainability and positive social change are more attractive to employees. A study by Marsh McLennan revealed that employers that rank high in employee satisfaction and attractiveness to talent have significantly higher ESG scores than their peers.
The same study noted that top employers tend to have lower carbon emissions, make a greater effort to understand employee feelings and needs, and are more diverse, especially in their leadership. As an ardent advocate for women in leadership, I’m pleased to note that companies with strong female representation in leadership score particularly high in employee satisfaction and attractiveness to young professionals.
By focusing on each of the three factors of ESG, businesses stand out from competitors when it comes to attracting and retaining top talent. High employee satisfaction results in employees that work harder, stay with employers longer, and produce better results for the organization.
ESG is a major consideration for investors
Investors are prioritizing ESG-focused companies now more than ever. Major firms like BlackRock are committed to sustainable investing and put a lot of weight on the ESG strategies of the companies in which they invest.
Of particular concern to BlackRock, among other investors, is global climate change. In his annual letter to CEOs, BlackRock CEO Larry Fink explained that “not long ago, building a climate-aware portfolio was a painstaking process, available only to the largest investors. But the creation of sustainable index investments has enabled a massive acceleration of capital towards companies better prepared to address climate risk.”
It is easier than ever for investors to put their money behind companies that are driving the changes they would like to see in the world. I know I, like many others, have seen the benefit of investing with my conscience. As I watch the younger generations enter the workforce, I have noticed that they especially want the companies they work for and invest in to reflect their values and priorities.
ESG-focused companies also represent less risk for long-term investors. A purpose-driven company that demonstrates value to its customers, employees and community will be more competitive and deliver better long-term profits for shareholders. Companies with strong ESG strategies are more resilient than their peers, and will often perform better in times of crisis, like the COVID-19 pandemic. This comes down to loyalty, as ESG-focused companies can better retain employees, and they are more attractive to customers and investors. Companies with strong values drive strong financial value for stakeholders and shareholders.
It’s been incredible to watch ESG become a global priority, and to see profits make room for purpose. The future of business is fast approaching, and it’s clear that purpose-driven, sustainable companies will continue to win.
That’s why I am proud to lead a company that is focused on purpose and has social good as a core part of its DNA. Our partners work with us not only because we provide a strong value proposition, but because we are actively driving social change. I took on this role knowing that I would be helping to make a difference, and every day I see the personal and business value from having a strong purpose. As more leaders come around to this way of thinking and doing business, I’m confident the world will be better for it.