Consumer-facing companies have been embedding aspects of environmental, social and governance (ESG) considerations into their businesses for several years now; however, their approach has typically been siloed, in response to specific issues.
Today, in the wake of a global pandemic and a parallel social justice movement — compounded by geopolitical conflict — customers, investors, regulators, employees, supply chain partners and society as a whole are increasingly asking, and sometimes demanding, that consumer markets (CM) companies make ESG a priority.
Our experience at PwC illustrates that four key areas constitute a holistic approach:
- Strategy
- Operational transformation
- Data and technology
- Reporting
CM leaders are responding to ESG demands by broadening their perspective, adding purpose to their overall mission — a goal that has evolved to encompass environmental topics and diversity, equity and inclusion (DEI). Purpose-led businesses are also expanding their target audience from mostly shareholders to a wider range of stakeholders: customers, investors, regulators, employees, supply chain partners and society as a whole.
Regulatory pressures are also hastening business adoption of ESG initiatives. In March 2022, the Securities and Exchange Commission (SEC) gave initial approval to the climate disclosure rule that requires all public companies to include certain climate-related disclosures in their audited financial statements.
As a result of these efforts, ESG has begun transforming the way CM companies operate. The benefits to society are obvious (including a more livable and diverse planet). However, benefits also accrue to companies with a robust ESG strategy: from growth and cost reduction to risk and reputation management.
Consumers and employees advocate for ESG
Consumers are an important cohort urging CM companies to support ESG strategies. Many businesses are paying close attention to their customers so they can better understand and respond to their concerns and desires.
Employees have also grown increasingly vocal about wanting their employers to be more proactive in their ESG efforts. They said they would be more likely to work for companies with robust ESG strategies.
"I will discontinue my relationship with companies that treat the environment, employees or the community in which they operate poorly"
Crafting an ESG strategy
As a result of the rapidly changing perspective on the importance of ESG, CM leaders now clearly understand the importance of responding equitably to your stakeholders, which, in turn, can help nurture a trusted brand. Use the following framework to help deploy your ESG program:
- Craft a strategy that’s specific to your company’s needs
Your company’s purpose and values should be the foundation of your ESG plans — efforts that should be clearly stated and widely shared with stakeholders. Accurate, ongoing communications are vital to ESG success with consumers, and these messages should be conveyed consistently so that your stakeholders are aligned with your company’s sustainability efforts.
Top management leadership and support for ESG enforcement are also essential. You should develop a framework that includes goals, tools and a blueprint for continuous improvement. Be sure to measure the impact of your ESG efforts and how they are affecting your business model. And don’t forget to plan for future refinements. - Start with a clear-eyed view of the cost-benefit ratio
To understand the total cost of ownership, you also need to include the total costs of compliance and investment at a meaningful level, such as the average cost of social responsibility programs per facility. This can help your company measure ESG’s return on investment.
Benefits include a wide range of areas — from revenue and profit growth resulting when existing customers buy more products or services to the addition of new customers who are attracted by your ESG efforts. Good policies can also help retain key employees and bring in new top talent. Improved risk management may avoid future costs. - Communicate your ESG goals transparently to suppliers
A focus on supplier transparency is a crucial element of an effective ESG program. Such an effort produces credible data and helps management make informed decisions when adding new suppliers.
You should also offer your employees opportunities to increase their knowledge of, and role in, ESG. You can use this approach to tell your ESG story to your stakeholders in ongoing conversations about your program, controls and systems, as well as your engagement channels. Stakeholders are listening carefully to the messages brands are sending. Keep in mind that businesses that don’t pursue social progress platforms like environmental impact reduction and DEI are likely to face a backlash. - Glean verifiable data from your own and supplier sources
It’s vital to prioritize high-quality ESG-related data that’s granular, reliable and provides a holistic view of a supply chain. A CM company can organize its own data fairly easily, but it also needs to get its business partners in the supply chain to provide trusted, accurate information that’s verified by third parties — and that’s not so easy.
Decide which types of data you need to collect because it’s not efficient or useful to collect everything. Segmentation could help by addressing your most material suppliers first, analyzing the relevant data and getting their feedback. Telling an ESG story is important, but backing it up with credible data is imperative. - Start small and build on your successes
To determine your existing ESG maturity level, you should start with an assessment of what components you already have in place, including policies, procedures, tools and talent. Next, you’ll need to develop an ESG governance structure, which should include a framework; code of conduct; technology platform, including dashboards and analytics; and a team to manage and audit your program.
When you’re ready to scale your ESG program, you can reach out to third parties, such as supply chain providers and industry organizations, and share how you plan to achieve your goals. Collaboration and feedback will be key to success — and to building trust with your stakeholders. In some cases, getting suppliers on board with your ESG initiatives may require incentives.
Creating value for your stakeholders
As increasing numbers of consumer markets companies begin tackling ESG concerns, they will need to develop a robust strategy that treats ESG not just as a challenge to be met, but also as an opportunity to create value for their stakeholders — thus enabling them to become ESG advocates for the greater good.
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