What is ESG and why is it your brand’s future?

Social, environmental, and effective governance commitment is an essential part of any brand’s strategy. These principles are linked to the development of a brand's identity and its acceptance or rejection by consumers and stakeholders. Today, consumers and business partners have focused on the development of sustainable brands. In this article, we will explore how the philosophy of sustainability has evolved for brands and companies and how using strategic communications can yield greater profitability and recognition of a sustainable brand.

The foundation of sustainability: Corporate Social Responsibility (CSR)

Large companies have managed their commitment and sustainability through Corporate Social Responsibility (CSR) programs. CSR refers to the way a company acts and interacts with its social and business environment and with its stakeholders (or key people) that it directly or indirectly impacts. Corporate policies and positions on social commitment, ethical business conduct, adaptability, and accessibility to those who serve a company and environmental commitment constitute what is traditionally known as CSR. Each company, according to its category and services, designs the CSR policies that best represent it and are in tandem with its corporate vision and mission.

The new kid on the block: Environmental, Social & Governance (ESG).

Just like the way of doing business has evolved, brands and companies’ social and environmental commitment has also changed. For several years, large companies have been transitioning their CSR programs and operational philosophy towards more comprehensive programs by adopting social, environmental, and effective governance principles, a criterion known as Environmental, Social & Governance (ESG).

ESG refers to a set of operational standards that are implemented through a tiered approach to achieve a company with sustainable principles and practices, committed to the environment and with cutting-edge policies. ESG is not born in a vacuum. In fact, experts on the subject point out that this philosophy of sustainability is rooted in CSR policies. However, ESG's criteria are more comprehensive and focused on truly achieving sustainable brands while achieving financial success.

Specifically, the ESG environmental factor includes all the actions and risk factors that a company considers based on their impact on the ecosystem in which it operates. The social factor considers the community effect and the environment within a company according to the context and circumstances in which it conducts business. Under corporate governance, ESG captures the impact of a brand's corporate policy and managerial decisions. In addition to covering environmental initiatives and social commitment, ESG incorporates governance criteria such as policies of inclusion, diversity, compensation, equity, and equality in the composition of the company’s workforce and health and safety policies for employees, among other criteria that seek to promote a fairer work environment.

Although these principles are considered intangible company values ​​, recent studies have shown that implementing ESG criteria creates value for the brand’s profitability, reputation, and long-term sustainability. Above all, more company investors are looking to these policies as a key factor in determining whether to invest in a certain business. The direct effects of incorporating these principles include an increase in the performance and retention of the talent that works for the company, better economic performance, reduction of operational costs, efficiency, and business partners’ satisfaction.

How do we incorporate ESG criteria into the corporate governance of a company?

The first step in incorporating ESG principles is to conduct a brand and company audit and self-assessment. This entails revisiting the brand’s values ​​and mission and reflecting on whether daily practices are truly in line with the brand’s principles. This will include, in most cases, an evaluation of the established CSR programs, labor policies, and commitment to the environment.

After conducting such company introspection, it is important to establish aspirational criteria in order to develop and implement ESG policies. Global consulting firms, in conjunction with the United Nations, are developing a guide on the common principles that should govern the incorporation of these practices. However, there are organizations dedicated to developing criteria by industries. One of these is the Sustainability Accounting Standards Board (SASB), a nonprofit organization that provides standards for financial and sustainability data transparency in 77 industries.

Once the principles that will frame the ESG policies in each company have been determined, the next step is to establish concretely and with defined metrics how these principles will be implemented. For instance, this could include the adoption of new policies for employees and/or the reaffirmation and financial commitment to a cause related to the spirit of the company. Each of these policies must also include a way in which to measure its impact.

Measuring the impact of each of these policies is extremely important for accountability and, above all, for a company's communication efforts. The latter is key because in the process of implementing ESG practices, it is essential to communicate and announce these practices. It is recommended not only to maintain the continuous transparency of the adoption, execution, and results of ESG policies. It is also recommended to annually report the results of such a program and communicate each of the initiatives and their results in a timely manner through traditional and digital media.

Are You Ready to Integrate ESG Principles to your Company?

At Lopito, Ileana & Howie (LIH) we have closely studied the development of this topic and how to integrate it into the brands of our business partners. We recognize its long-term value not only for companies, but also for the well-being and success of everyone involved. Our Community Engagement Department has conducted evaluations and audits on these aspects and developed this philosophy for some of our clients in order to achieve transformations that result in the progressive adoption of ESG policies.

To find out how your brand or company can benefit, contact us.