2024.06.06 / View Point

ESG and CSR's Implications for Corporate Branding (Part 2)

Why ESG is Becoming More Important for Companies

01 Investor Focus

One of the most powerful drivers of the shift toward sustainability in business is the pressure from investors. A large body of research points to the growing focus on ESG by investors. According to Gartner, the value of ESG to investors is increasing. In 2020, 85% of institutional investors considered ESG-related investment targets, while 91% of banks monitored the ESG performance of their investments. Investment research firm Morningstar highlighted 72 ESG-related shareholder resolutions in proxy votes, with half of them receiving majority support.

A report by Bloomberg in 2021 estimated that global ESG assets would exceed $53 trillion by 2025. Larry Fink, CEO of the world’s largest asset management firm, BlackRock, clearly stated that investors are paying attention to sustainability, noting that sustainable investments not only do the right thing but also deliver long-term, sustainable returns.

02 Regulatory Requirements

An increasing number of regulations are directly addressing the three aspects of ESG. For example, in the environmental domain, there are regulations such as REACH (Registration, Evaluation, Authorisation, and Restriction of Chemicals), RoHS (Restriction of Hazardous Substances Directive), the EU Waste Framework Directive, and the Toxic Substances Control Act. Since the signing of the Paris Agreement, governments have been developing corresponding regulations. Countries like Sweden and Germany have set legally binding net-zero emission targets for 2045, while the UK, Canada, Japan, and others have committed to achieving net-zero emissions by 2050. The EU taxonomy also regulates companies based on their environmental sustainability, affecting not only EU companies but also global businesses operating within the EU. Given the growing focus of many governments on sustainability, businesses and organizations should start adapting their operations. A proactive approach to sustainability also helps improve relationships with regulatory bodies.

Additionally, laws like the UK Modern Slavery Act, the Australian Modern Slavery Act, the U.S. Tariff Act, the Federal Acquisition Regulation, the Defense Federal Acquisition Regulation Supplement, and others address forced labor and the social impact of companies. On corporate governance, the Foreign Corrupt Practices Act mandates companies to make substantial efforts in anti-corruption and sanctions.

03 Industry Leadership

Industry leaders are setting ambitious targets to improve resource management and reduce carbon emissions, actively addressing their environmental impact. Companies are working to achieve more efficient and sustainable use of resources.

04 NGO Scrutiny of ESG Reports

Many non-governmental organizations (NGOs) play a leading role in ESG. Known for their ethical stance, commitment to justice, and desire for positive social and environmental change, NGOs increasingly demand greater transparency in ESG efforts. Given their unique public position, NGOs can apply continuous pressure on companies regarding sustainability issues, making these concerns more visible to the public.

05 Consumer Preferences

Today’s consumers are more informed than ever about ESG issues and their impact on the environment and society. Many consumers do not want to be part of environmental destruction or human rights violations. When NGOs disclose evidence of poor ESG performance, the public takes notice and acts. With the rise of millennial and Gen Z consumers, the demand for sustainable products is increasing. 73% of Gen Z consumers say they are willing to spend more on sustainable products. PwC’s consumer research shows that consumers are increasingly focused on sustainability, with 80% of them preferring to purchase from companies known for their environmental, social, and governance practices. 76% of respondents reported consciously practicing sustainable consumption. Another Deloitte study shows that about 60% of UK consumers have reduced their use of single-use plastics to adopt a more sustainable lifestyle, and one-third of British consumers choose brands with strong sustainability credentials. As global demand for sustainability continues to rise, integrating sustainability goals into a company’s strategy is crucial for any business in the coming years.

06 Attracting Talent

ESG is critical for attracting, retaining, and satisfying employees. To attract the best talent, it’s essential for companies to be perceived as having sustainability goals. Strong ESG initiatives can significantly impact employee motivation and reduce supply chain risks, while weak ESG efforts can have the opposite effect. Deloitte’s research shows that 49% of Gen Z and 44% of millennials make career choices based on personal ethics. A recent survey found that 51% of U.S. business school students would accept a lower salary to work for a company responsible for the environment. As competition for talent increases, companies that ignore sustainability may find themselves losing key human capital to competitors, ultimately affecting their profitability.

07 Improving Productivity

Clear ESG strategies will motivate employees and improve their performance at work. McKinsey research shows that sustainability can reduce costs and impact up to 60% of operating profits. Deloitte’s research also indicates that companies with an inclusive culture experience a 27% increase in profitability and a 22% increase in productivity.

Insights for Corporate Branding

01 

Corporate brands should place more emphasis on the social value they bring. The focus should shift from passive CSR (Corporate Social Responsibility) brand image enhancement to active creation of ESG (Environmental, Social, and Governance) brand value. Sustainable practices should be closely tied to a company's long-term goals, even serving as a core element in guiding business strategy and innovation.

02 

A comprehensive understanding of the industry and ESG-related issues is essential. Each ESG factor holds varying significance and unique meaning for different industries and companies. While balancing the pursuit of shareholder interests and sustainable practices, businesses need to deeply understand their operational characteristics and implement practices that address the most critical ESG factors.

03 

The management of a company's brand, its communication, and its ESG actions should all be aligned with its mission, vision, and core values. This will ensure that the company contributes substantively to its goals in the process of pursuing sustainable development, leading to genuine value creation while avoiding "greenwashing."

04 

Clear brand communication and dissemination are crucial for enhancing and strengthening the brand's impression in the minds of its target audience. To win the favor of stakeholders, companies need to craft brand value propositions that resonate with people and showcase their ESG (Environmental, Social, and Governance) principles. Brands must effectively and systematically communicate their sustainable practices at various brand touchpoints, providing transparent information to stakeholders such as investors, suppliers, customers, government officials, and the general public. This will help shape a correct understanding among the audience, contributing to the accumulation of the brand's intangible asset value.

For businesses, constructing an ESG strategy and integrating it with their development has become an urgent task. In fact, achieving ESG goals is inseparable from building a strong corporate reputation and a profitable business. ESG practices are not just about corporate social responsibility or philanthropy; business owners should recognize that commercial returns and social impact can be achieved simultaneously. This represents a long-term investment in the corporate brand, where the significant ESG factors are actively incorporated into business management processes and brand image building. When a company's commercial investments and practices in ESG align with its long-term social impact, integrating ESG practices enables the company to showcase its commitment to sustainable development, positively impact the world, and, as many examples prove, generate significant profit returns.