Driving Growth With a Purpose-Led ESG Strategy
Communicating where you stand is critical: Most Americans choose or avoid brands based on social issues.
Delivering “impact” has taken on extraordinary new meaning in the last two years. Across the world, consumers, employees, and other key stakeholders became focused on how brands deliver impact through ESG (Environmental, Social, Governance) practices with 2 in 3 consumers willing to pay more for products and services from brands that are committed to making a positive social impact. As a result, the challenge for brands has shifted from talking the talk to walking the walk.
It has become clear simply articulating and communicating purpose is not enough to drive meaningful value. Case in point: according to a global survey of 474 executives conducted by Harvard Business Review, 90% of executives said their organization understands the importance of purpose, but only 46% said it informs strategic and operational decisions.
To create value, we believe purpose must act as the North Star across the organization. At the epicenter of all activity, purpose has the power to drive business transformation including new business models, product and service design, employee engagement and more. Specifically, organizations that tie their ESG strategy to purpose—and thus, business and brand strategy—shift away from risk mitigation towards value-additive action better integrated with the business.
Today, ESG strategies are too often isolated from the business and either focused purely on hitting rating agency benchmarks or generating positive publicity. Using purpose to drive a linkage across the business, brand and ESG strategy prevents risks associated with virtue washing and ultimately drives competitive advance with differentiated value propositions.
How to Activate ESG to Create Value
So how does a company tie its ESG strategy to its purpose? First, it must build a statement of intent, defining specific plans to deliver its purpose to its community and society at large. For example, ING Bank demonstrates its purpose, “empower people to stay a step ahead in life and in business,” with a slightly more specific ESG strategy aimed at “helping customers and society stay a step ahead of the challenges they’re facing.” By honing its ESG strategy on the “challenges they’re facing,” ING is able to define how it fulfills its purpose in the communities it operates with.
“2 in 3 consumers willing to pay more for products and services from brands that are committed to making a positive social impact.”
While an ESG strategy states how the purpose will come to life, related impact areas allow the organization to focus on its activation efforts. An organization’s impact areas are thematic areas the organization will execute against to bring the ESG strategy to life.
To define these impact areas, organizations should consider four lenses while remaining focused and meaningful in their efforts and, without spreading themselves too thin. Impact areas must be:
Do impact areas clearly align with the organization’s core business offers and enable necessary choices and tradeoffs? P&G manufactures thousands of products that consumers use in their everyday lives. Because the production, distribution, and waste of these products can contribute negatively to the effects of climate change, P&G has focused one impact area on packaging sustainability, committing to 100% recyclable or reusable packaging by 2030.
Do impact areas build from strengths and competencies the organization has today to ensure it can have a unique and material impact in the market? BlackRock’s purpose is to “help more people experience financial well-being,” resulting in an embedded focus on long-term financial sustainability across the business. In pursuing this focus, Blackrock saw an opportunity to focus on impact, setting out to build a new platform to invest in mission-oriented businesses. In 2019, the new platform launched, leveraging existing scale and expertise to strengthen Blackrock’s position while bolstering its intention to make a long-term impact.
Are the impact areas appealing and applicable to the organization’s colleagues, customers and communities? The aviation industry accounts for roughly 2% of global carbon dioxide emissions. Delta Air Lines’ carbon footprint is its largest environmental impact, with 98% of emissions coming from its aircraft. In 2020, Delta focused on carbon neutrality, with the goal of becoming the first carbon-neutral airline globally.
Are the impact areas conducive to being objectively measured? ABInBev, the world’s largest brewer, embarked on a goal to ensure 100% of its communities in high-stress areas have measurably improved water availability and quality by 2025. Within its breweries, teams leverage internal systems to monitor water use on a routine basis and develop bespoke tools to review operations on a quarterly basis.
“We aim to lead a corporate shift toward measurability and accountability, ensuring that our local investments and programs translate into lasting impacts on water quality and availability for our communities and our operations around the world,” states ABInBev’s stewardship campaign.
Making an Impact in All Directions
The need to connect ESG to purpose has never been more urgent. In 2020, almost 60% of Americans said they would “choose, avoid, or boycott a brand based on its stand on societal issues,” compared to only 47% in 2017. And more than half (53%) of consumers who are disappointed with a brand’s words or actions on a social issue complain about it.
Companies that build their ESG strategies and related impact areas to deliver on their purpose will create memorable, human-centered experiences that allow customers, employees, and other stakeholders to grasp the power of the organization’s efforts. Capturing impact through signature stories creates memorable, human-centered stories for customers, employees and other stakeholders to grab onto as examples of the impact of your ESG impact areas.
We are all learning how to move forward together, and business leaders are no exception. The challenges of tomorrow have arrived, and the world is eager to witness how companies respond. Any brand can tell a story about how they plan to make a difference. However, the most relentlessly relevant brands are those that put words into action.
Contact us to learn more about how to create a purpose-led ESG strategy that drives growth for your organization.