Sarah Blanchard, Head of ESG at Prof Consulting Group, explains why there is an urgent need for companies to engage with consumers and stakeholders on ESG, and how they can successfully meet rising expectations.
By 2030, global carbon emissions must have been reduced by 45% and be net zero by 2050 to meet the Paris Agreement. This will limit global warming to 1.5 degrees above pre-industrial levels and avoid the worst impacts of climate change.
Australia, for example, is warming above the global average, culminating in extreme weather conditions such as floods and droughts. Once thought of as isolated, these extreme weather events are becoming more frequent and are having a serious impact on our way of life.
A new generation of climate and socially conscious employees will enter the workforce in 2030. These Gen Zs will not be attracted to companies that do not actively manage their environmental impact and will not stay with them for long. Only one in five would work for an employer that doesn’t share their values and, crucially, Gen Z have high expectations of the CEO – 41% expect leaders to actively solve social issues.
Businesses need to understand that preserving the future is just as important as acting in the short term.
These employees will be part of a group of consumers who will have even higher expectations for brands to be responsible. We can see this is already impacting their decisions about what they eat, wear, how they live and move – although they may not always be willing to spend more on sustainable products.
Nonetheless, there is growing recognition that brands that meet every aspect of the ESG (environmental, social and governance) agenda resonate better with consumers and, in some cases, command a premium.
Opportunity tips the balance
If the risks of not engaging on climate and social issues are considerable, the opportunities are immense. Think of it as a move towards a world where businesses don’t pollute, waste is valued, and key inputs like energy are minimized. People would enjoy where they work and communities would be clean and pleasant places to live. It’s hard to argue with that.
The transition to a low-carbon economy presents a significant investment opportunity. In Australia, this is estimated at $420 billion across the four main economic systems – energy, mobility, raw material manufacturing and food and land use (FALU). Contributing 16% to emissions and 13% to the economy, climate action in FALU is a proven way to positively impact the natural environment and livelihoods.
Further reading: Navigating the complexities of sustainability in the food sector.
Large companies that acted early and focused on their triple bottom line by integrating ESG into their business processes are seeing the benefits. Conversely, if companies don’t engage now, market share and customer loyalty could be significantly affected as consumers shift to more trusted brands. The future 10 years from now for laggards could look very different.
There is a deep desire for change
Change is not happening fast enough and the investment community is demanding that corporate leaders take full responsibility for their climate and social impact. In response, the ISSB is harmonizing sustainability disclosure standards to help investors compare companies equally – in the same way international financial reporting currently does.
With this information, investors can allocate capital to companies deemed not only financially secure, but environmentally and socially responsible.
Impact investors are increasingly active as the financial industry recognizes the opportunity for ESG-focused companies to succeed in their category by connecting closer to today’s consumer.
By reading the signals from consumers and investors, regulators have become more courageous and are strongly attacking greenwashing. Europe has the Responsible Food Business and Marketing Code of Practice and in the UK the Advertising Standards Authority is drawing attention to high-profile brands for misleading the public with their unsubstantiated green claims in food.
In Australia, we are already seeing a similar approach from the ACCC. Consumers are increasingly sensitive to false claims, as illustrated by a class action lawsuit in the United States against a clothing brand for falsifying sustainability information.
In addition to fines, reputational damage for overstating claims or delaying climate action can be difficult to overcome. Creative businesses are increasingly aware of the clients they work with and the potential negative association with poor sustainability performance.
NGOs continue to expose corporate sustainability performance at a deeper level, for example, industry benchmarks of agriculture and food companies. Some investor groups support NGO demands for standardized and mandatory measures.
Companies need to look at their impact beyond their own operations and eyes are on the upcoming EU Corporate Sustainability Due Diligence Directive, which will determine how companies manage their supply chains in Europe. and abroad. Above all, SMEs as well as large companies will be affected.
These factors are amplified by disruptions in the supply of raw materials where shortages caused by war and drought affect product revenues. Sourcing and product development teams need to approach sourcing in an agile way while figuring out how to secure supplies closer to home.
While consumers and key stakeholders demand clearer and more accurate ESG information, the complex network of supply chains makes transparency difficult and hampers genuine efforts to support sustainability improvements and communications.
Companies also need to grasp new concepts and languages of sustainability such as ESG, circular economy, social protection and Scope 3. Understandably, many companies are stagnating, not knowing where to start.
The worsening economic crisis and instability has put many businesses in survival mode, but the challenges we see are not insurmountable. Companies that manage their resources carefully, deeply understand the new consumer and help them live sustainably, win.
How Prof Consulting Group helps
At Prof Consulting Group, we have an intimate focus on the consumer and our ESG team is here to help companies meet new consumer responsibility demands. This can be a challenge for our clients who say they don’t know where to start or what to prioritize.
But by working alongside them, we help our clients understand ESG and its role in their organization. We assess their current position and guide them to set industry-relevant goals while gaining critical senior management support.
Our services include developing sustainability strategies and plans, engaging employees and suppliers to help implement them, sustainability assessment including on-site assessments and follow-up actions, optimization of supply chains, innovation and product development. Focusing specifically on agriculture and food sustainability, our expertise includes animal welfare, social impact and human rights, food safety, packaging, carbon footprint and labeling.
Thanks to our network of associates and business partners, we can help companies in their approach to sustainable development, whatever their stage. We are convinced that, whatever their size, all companies can make a difference now and for the future.