What is the impact of ESG on your brands?
A brand is not just a company, but an identity, an aggregate of core business values, ethics, management and more. Brands are not formed overnight. It takes years of dedicated, holistic corporate governance, the adaptation of modern technology, contributions towards sustainable environment, impacting society, social welfare initiatives, employee and customer retention capabilities and more to establish brand value. A brand’s value is often measured by its success stories among its investors, consumers as well as its employees. And, in today’s business world, a large part of a brand’s success depends not just on its revenue generation but on good corporate governance, how socially responsible and environmentally conscious a company is. Impact of ESG on brands are indeed far-sighted.
What is the Impact of ESG on brands?
Let’s delve deeper to understand ESG and its impact on your brands. While calculating a brand’s market value it is often seen that intangible assets such as a brand’s Goodwill, Recognition, Brand Reputation, Customer Loyalties, Marketing Spend and so on CSR or Corporate Social Responsibility also play significant roles.
The CSR spend on either of the ESG or Environmental, Social and Governance elements can be broken down further.
Environmental: A brand’s contributions towards creating a sustainable environment, including optimum usage of natural resources, waste management, pollution control, energy conservations and more during the production process plays an important role as investors focus on the Principle for Responsible Investments (PRI).
As David Blood, Generation Investment Management puts it, “sustainability is an important factor in the long-term success of a business. Therefore as with any other issue related to the prudent management of capital, considering sustainability is not only important to upholding fiduciary duty, it is obligatory. As the context of business and investing continues to shift, implementing a framework for allocating capital that embeds sustainability into it will be critical to successfully navigate the transition.”
Social: A brand’s contributions towards social welfare, employee management, HR policies, employee advocacies and more are taken into consideration while maximizing its market value.
Governance: A brand’s compliance with tax policies, remuneration strategy, anti-corruption policies, risk management and more are also taken into consideration while generating the ESG score.
What is an ESG score?
To make it easy for investors as well as consumers, brands are often provided an ESG score to evaluate its performance. The ESG score undoubtedly determines the impact of ESG on your brands. According to a recent report by Brandometry’s EQM Brand Value Index in 2019, HP scored a perfect 100 ESG while Microsoft 96 thereby impacting its success records.
ESG and Investors – how are these interrelated?
In today’s world, it is not just about financial success that comes into consideration for investors. It is equally important for investors to rely on brands that are conscious about their environmental and social responsibilities while implementing holistic corporate governance. Whether it is about contributing towards a sustainable greener environment or supporting human rights, your brand’s ESG score makes all the difference for investors as well as consumers.
Acknowledged by the European Commission in its report on sustainable investments, ESG is crucial to generate enhanced market trust and value for shareholders.
ESG – an expenditure or investment?
Adapting business development strategies based on ESG is not just about incurring expenses. The idea goes deeper. ESG is an investment a brand makes to enhance the chances of revenue generation by planting the seeds of trust among investors thereby adding value to its shareholders.
In order to leverage the multifarious benefits of adapting ESG, brands need to develop a sustainable intelligence strategy which complies with the company’s core business values.
ESG is often regarded as a ‘halo effect’ wherein brands invest on intangible assets yielding in developing ultimate brand value.
Thus, investments on ESG and creating a holistic corporate governance create a virtuous circle by which a brand enhances its trust score and market value thereby attracting investors and impacting the demand for its shares.
