What are ESG Companies and How Can You Become One?

Investors and consumers are growing more interested in how sustainable businesses today are operating. As a result, ESG factors are now a priority in business models to meet the increasing demand for greener practices, better employee care, and more diverse management. As a result, ESG companies gain more investors and build trust with their consumers.

You will learn what authentic ESG looks like in businesses and how to be an ESG company that investors and consumers trust.

Key Takeaways:

  • ESG stands for environmental, social, and governance factors within a business and measures how sustainable a business model is.
  • Many companies knowingly or unknowingly greenwash their marketing to appear more sustainable than they really are.
  • An authentic ESG company must align itself from the inside out with a sustainable mindset.

What Are ESG Companies?

ESG stands for environmental, social, and governance which are three criteria that investors and others use to rate companies on the sustainability of their operations. If you receive high ratings in each area, investors and consumers know you are an environmental and socially conscious business that cares about its employees, community, and earth.

ESG factors are one of the focuses of many investors, with stocks from sustainable businesses rising above those with less-sustainable practices. In 2021, $649 billion went into ESG-focused funds, which was a massive jump from 2019, where $285 billion went into ESG-focus funds.

Here are a few specific areas within your company that impact each ESG factor.

Examples of ESG factors within a business

Image from Corpora

Environmental Factors

Your environmental impact is how well you protect the environment through sustainable practices, recycling, and renewable energy. An environmentally conscious business will:

  • Reduce energy use
  • Minimize waste
  • Comply with governmental waste management regulations
  • Reduce your carbon footprint
  • Proactively rebuild the environment

Social Factors

Social factors are often connected to how you treat your employees and community. Here are a few ways a business can have positive social factors:

  • Pay fair wages
  • Avoid products that use forced labor
  • Care for your community
  • Use high safety standards

Governance Factors

Governance criteria consider how you manage and operate your business. This includes:

  • Avoiding conflicts of interest within your management
  • Hiring diverse leaders within your company
  • Operating transparently

How to Know if You are Greenwashing Your Company

Greenwashing occurs when you portray yourself as more sustainable than you actually are. This often happens for marketing, where a business will throw around unsupported terms like “all-natural” and “eco-friendly” to connect with more consumers.

Volkswagen is one example of a company that used greenwashing for marketing purposes. They promoted their vehicles’ low-emissions and eco-friendly features. However, the public later discovered the company was cheating on emissions tests by adding a software device to lower a vehicle’s emissions level during these tests.

Instead of ESG being a marketing ploy for a single campaign initiative, it should be at the heart of your company’s business model. It should fuel your decisions and activities throughout the organization, even in areas that consumers will never see.

How Greenwashing Hurts Your Brand

Greenwashing is responsible for many consumers losing trust in businesses that claim to be sustainable. About 53% of U.S. consumers rarely or never believe companies that claim to be eco-friendly.

Conversely, if you prove to be authentic, consumers are more likely to purchase from your brand. For example, 75% of millennials would spend more on a product from an ESG company.

The following video covers how the term greenwashing came to be and a few greenwashing red flags for consumers you should avoid.

How To Be an Authentic ESG Company

Here are five ways to become an authentic ESG company internally and publicly.

1. Make ESG an Internal Pursuit

The most important way you can be an authentic ESG company is by making it a core value of your business. Your ESG practices shouldn’t just be phrases you place on products and services to look more appealing. Instead, it should be an integral part of your business model.

If it is part of who you are as a business, ESG factors will overflow from your marketing efforts into every other area of your business. For instance, ESG would affect the cups you use in your break room, how much electricity you use while in the office, where you purchase supplies, etc.

2. Remain Honest

The easiest step to be authentic is remaining honest with your customers. This means you should avoid exaggerating your ESG practices, lying about your operations, or using imagery that promotes a false narrative.

For example, many bottled waters have pictures of green trees and healthy streams despite their plastic being harmful to the environment.

3. Use Specific Language

Terms like “eco-friendly,” “equality,” and “diversity” are words that are so common that they have lost their value. Instead of throwing around words you think consumers want to hear, replace them with specific terms.

For instance, instead of saying you have a diverse workforce, you might say you have an inclusive environment. Then you should support that phrase with your terminology by avoiding isolating terms like gendered or racist terms that would contradict your claim.

4. Be Transparent in Your Business Practices

Transparency means being open and honest in your communications with investors and consumers. It is key to building trust as the people you interact with can see proof that your ESG claims aren’t just surface deep but are a core part of your business model. One survey showed that 94% of consumers would be more loyal to a transparent brand.

5. Support Your Claims

You should always have proof for every ESG claim you make. Your proof can be data, testimonials and feedback, statistics, or support from well-known companies. This way, consumers know exactly how you address specific ESG issues.

Microsoft was rated as the best ESG company in 2021. They are also a prime example of an ESG company supporting their claims with hard facts. Below is an image from their website where they outline their ESG goal and share an annual report of where they are in reaching that goal.

Microsoft’s 2021 environmental sustainability report

Image from Microsoft

Make the Change in Your Company

Use the five methods above to transform your company into an authentic ESG organization that cares about the environment, community, employees, and the world. Then use those values in your marketing campaign to build trust with your clients.

Learn about our solutions that create a seamless customer journey and unify your authentic brand messaging.

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