From ESG to ESDG: why to add a “D” and why ESDG Matters for Sustainable Brands

ESG Sustainability
ESG Digital

Transcript for ESG to ESDG: Why Add a “D” and why ESDG Matters for Sustainable Brands

Hello, everyone. I’m Edmund Bradford. And in this video, we’re going to be talking about the hot and tricky subject of ESG.

And to help me with that, we have Yelena Novikova, who is a G20 young global changer and an independent expert on ESG and sustainability.

So thank you very much, Yelena, and welcome.

Thanks for having me. It’s a pleasure, Edmund.

Now, one thing that you told me about, which I thought was very interesting, is that you and some of your colleagues, I’ve actually changed ESG and you’ve added D into it.  So you are often referred to it as ESDG. Do you want to explain what that D is all about on ESDG?

D is for digital. And I would say that we didn’t change the ESG. We just gave more importance and attention to the very important D factors that were always there but were becoming more apparent because of the work that we started doing on Public Value Principles for which this ESDG term is kind of very central front and center would say.

It started right during the time when we were all globally. Pretty much all the countries went into lockdown.

And as we know, even right now, one in four Americans are working from home, 16% of companies globally are fully remote, and 62% of people are reporting that they still work from home at least some of the time.

And it’s now when many countries are already getting vaccines. So right at the time when we studied this work, it was even more apparent digital kind of took over our life.

And even before that, laymen would think about digital factors because

they are given data to digital platforms like Facebook or even like regular

sites that ask you to give permission for cookies, for example. But as we went into the pandemic, it kind of became more apparent that it’s much more a nuanced topic of companies, our digital data, and us and how we communicate through digital means.

For example, one example I would give is productivity software because a lot of companies started to install productivity software on laptops for working from home employees. And no one actually knows how much data a certain software might receive.

There is a known kind of concept of mission creep the developers are talking about. So right now, for example, this software is used for productivity software strictly. But no one is to say if the company may be less responsible and they might use it for extracting more data about the place and stuff like that.

So it’s a big topic right now where some companies want to use this productivity software, others maybe don’t want to use this productivity software. And then there are other companies that say we might use it, but we will have a strict mandate what we are using this for.

Sustainable SAM: Are You Ready for The New Reality?

Sales Management Sustainability
SAM sustainable strategy

Sustainable SAM in Brief:

  • We have passed the tipping point of interest in sustainability
  • Sustainability and other good behavior metrics now need to be reported
  • That means your strategic accounts will no longer be satisfied with bland statements of intent from your company
  • Sustainable SAM will be a key differentiator soon

Background to Sustainable SAM

I was interviewing the Head of Sustainability at a global hospitality company recently when she told me an incredible fact: “In the past 12 months, for the first time, more investor funds have gone into proven sustainable companies than into non-sustainable companies.”  So, if you are working in a company that has not proved itself sustainable to investors, you are in the wrong half of where the investor money is going. 

If you want to see an example of this transition, consider Blackrock, one of the world’s largest investors with $8.68trillion in assets under management at the end of December 2020In his 2021 letter to CEOs, Blackrock’s CEO, Larry Fink, talked about the fact that the pandemic had, accelerated the tectonic shift to sustainable investing with a near doubling of its investments in this area compared to 2019.

Why is this?  

Investors recognize that climate change is investment risk. They understand that companies serious about dealing with climate change are a better bet than companies that do not.  Moreover, there is increasing evidence that companies like Pepsi and Unilever provide better returns on top of the sustainability agenda. So, it is not because investors have suddenly become environmentalists but because sustainability makes hard business sense. 

The rise of the Greta Thunberg generation is also focusing minds. It is estimated that “about $68trillion of wealth will change hands in the next twenty-five years as the baby boomers die” (Reimagining Capitalism by Rebecca Henderson, page 147)  

Finally, the dramatic increase around the world in Government intervention in sustainability is also a key factor.  For example, the UK Government has committed itself to legally binding targets in its 2008 Climate Change Act. It will showcase its efforts at the COP26 UN Climate Change Conference in Glasgow, Scotland this November. In December 2020, the European Union agreed on a EUR 1.82trillion Green Deal to support a green recovery. In February 2021, U.S. President Joe Biden announced a $2trillion Green New Deal.  

These combined forces from investors, customers, and governments have created a perfect storm of sustainability change heading our way. 

Understanding what we are talking about

Before we consider how sustainability affects the demands from your strategic accounts, it is worth considering what we are talking about. The world of sustainability is a large and complex area with many different views and measurement systems.

Fortunately, there have been two significant steps forward in this arena.  Firstly, much work has been done on Environmental, Social, and Governance (ESG) metrics. Secondly, in September 2020, the World Economic Forum and the world’s biggest accounting firms agreed on a common approach to ESG and, therefore, a common way to measure sustainability (Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation).   They agreed on four areas (or “pillars”) of measurement based on Principles of Governance, Planet, People, and Prosperity.  Note that this goes far beyond just the green agenda of helping the environment. 

In addition to this, many experts like Professor Steve Kempster, co-author of “Good Dividends: Responsible Leadership of Business Purpose,” claim that you cannot become a sustainable company without having Purposeful Leadership at the top. 

That leadership will have to strike the right balance between short-term profits and long-term sustainable growth. 

Therefore, we have created a 6P Model that we find helpful in explaining sustainability to our clients (see below).  Sustainability is not just about being “greener.” It is a comprehensive approach aimed at challenging companies to grow in a good way that enhances the planet and delivers broader prosperity, happier employees, and more sustainable profits.  We call this Good Growth, and our view is that the best firms should aspire to be a Good Growth Company.  

The 6P Good Growth Model

6 P's Model - for SAM

 

The rise of sustainability in your strategic accounts

As I write this, I am aware of several initiatives underway to assess suppliers’ sustainability better. The United Nations is sponsoring an initiative to develop a common supplier framework in the health industry. Procurement functions in different companies are looking at how to apply ESG metrics to their key suppliers. The UK’s Chartered Institute of Purchasing & Supply encourages its members to conduct ethical and sustainable procurement. Individual companies, like Unilever, have warned their suppliers that supplying a sustainability plan will no longer be enough. As part of the tendering process, suppliers need to demonstrate real commitments to hard targets, which will be tracked. 

This is happening because their investors and their customers are asking the leadership teams of your strategic accounts about what real actions they are taking to improve their supply chain. Indeed, if they are reporting on broader measures of greenhouse gas emissions, they will need to know the emissions of their suppliers to complete the report.

Broader measures could be ‘Scope 2’ reporting of greenhouse gas emissions from energy purchased; and ‘Scope 3’ reporting of greenhouse gas emissions from the whole upstream and downstream value chain.

These reports will be scrutinized for signs of progress or regress, with significant ramifications on customer demand, brand valuation, and the share price.

How these changes will affect how they buy from you

Strategic accounts will be looking for the following items from their key suppliers:

  1. Plans
  2. Commitment
  3. Metrics
  4. Proof-of-Progress

If it has not happened already, expect to see more of these issues written into RFPs. You should also expect the minimum (order qualifying) criteria to rise as well. Vague answers to specific questions like, “When will your organization achieve Scope 1 Net Zero GHG emissions?” will not be acceptable. Suppliers that do not pass the minimum tests will not make it to the final selection. 

Your Response: Developing Sustainable SAM

These emerging trends mean that sustainability needs to migrate from something on your radar to an integral part of your business and your account development process. 

You will need to have: 

  • Well-thought-out plans, with specific targets and timescales, for how you will improve the sustainability of your whole organization and your supply chain in the future.  This should include innovative ideas to collaborate with the account to reduce the environmental impact of your joint relationship. This may include the redesign of products, services, and account support to reduce carbon emissions. These organization-wide (enterprise-level) plans should be integrated with individual account plans.
  • Evidence that there is a real commitment from the top to deliver these plans. This should include details about who has responsibility for sustainability in the company, who that person reports to, and how the account manager reports to them.  Ideally, this should be a full-time position reporting directly to the CEO, whom the account manager can call for expert guidance and support. 
  • A detailed set of metrics that you will use to measure progress.  These metrics should be defined, explained, and justified (e.g., based on independently approved measurement standards like The Sustainability Accounting Standards Board) and applied at an account level. 
  • Robust procedures and systems are in place to track progress using the metrics. Ideally, this should collaborate with an independent auditor (e.g., one of the big four accounting firms).  The auditor must be able to inspect individual account relationships upon request. 

To get all this done, sustainability needs to be coded into your SAM blueprint.  The dirtiest accounts need to be de-prioritized in your strategic account selection process. The goals, objectives, and strategies for individual accounts need to be re-appraised. The account plans need to be revised.  The IT systems need to be re-engineered to gather new data. The account managers need to be trained in sustainability. The account review system needs to be re-wired with different auditors. And more. This will not be easy, but those that succeed in achieving Sustainable SAM will gain a big advantage over those that flounder. 

Let’s look at water, surely a commodity if ever there was one. Corporate buyers in the hospitality industry are susceptible to the unit cost of buying water.  High volumes and bulk discounts have been the norm for decades. However, a small British firm called Life Water is growing nicely without being forced to cut costs. It packages its water in an innovative can that is 100% recyclable and contains zero plastic, unlike some of its competitors’ single-use plastic water bottles. In addition, it also acts to improve access to clean water.  For every unit sold, it contributes to clean water projects around the world. It was voted Best Sustainable Beverage Brand in 2019, and a corporate buyer I was interviewing was very impressed with them. He is responsible for an annual spend of around £1billion and is moving more spend their way.  

So, with a focus on sustainability, the actual cost of the product is less important than the value of the relationship to the buyer.  From the supplier’s point of view, that means more revenue from the account. For both sides of the relationship, it means a better long-term collaborative partnership. 

Indeed, if you already have good collaborative relationships with the accounts, then you can leverage them in new ways to discuss how you can collectively improve the sustainability of your whole supply chain and the entire industry. There is broad recognition that the only way to reduce global warming is to take broad collaborative action. Therefore, Good Strategic Account Management has a crucial role in driving real cross-enterprise sustainable change. 

Conclusion

Is achieving Sustainable SAM an easy path? No. Is it a risky path? Yes. 

However, the risk of not changing is even greater. Investors are encouraging change because they see the journey to sustainability as reducing the financial risks of climate change. 

As a strategic account manager, account director, or program leader, you need to learn about this subject. You need to become competent in it. That does not mean you need to go off and do a master’s in sustainability.  You do not need to be the expert in the room. It would help if you were confident in conversations about this subject.  Those conversations will become more frequent and more important over the next few years. 

The good news is that you should also already be a good change agent.  You will be well-used to using all forms of legitimate and illegitimate power to influence others to move business relationships in the right direction. It would help if you now upgraded to change leadership.  If you have not already done so, read Leading Change by John P Kotter and practice the art. You will then be well-equipped to make a real difference.  

As someone already working across functional, organizational, and geographic boundaries, let’s be frank about this, you can make a significant difference. 

Help to change the future and enjoy helping to save the world. 

First published in “Velocity” Volume 23, Issue 2, 2021 by the Strategic Account Management Association.

What is “ESG” and why we should care about it?

ESG Good Growth
ESG

An interview with Dr Pooja Khosla

When discussing sustainability, “ESG” often comes up. What is it and why should we care about it?

To help answer these questions, I interviewed Dr Pooja Khosla, Vice President of Client Development at Entelligent.

Her thoughts can be summarized in three key points:

  1. “ESG” is about measuring how the actions of companies, consumers, investors and all stakeholders impact broader society.
  2. Before the industrial revolution, companies were focused on value creation. After the industrial revolution, the focus shifted to measurements of financial results and therefore value extraction.
  3. If “sustainability” is the destination that stakeholders want to reach, then “ESG”  is the measurement of progress towards that destination.

Transcript

The timings are shown to help you jump in to the video at the right point if needed.

[00:00:09 –> 00:00:48] EdmundWell, Hello. I’m Edmund Bradford. I’m a director at the Good Growth Academy and in these short videos, we hope to help give people an understanding of some of the key areas around sustainability. In this little video, we’re going to talk about a term that you hear quite a lot when people are talking about sustainability, which is “ESG.” To help me with that, I’m delighted to welcome Dr Pooja Khosla, who is Vice President of Client Development at Entelligent. Good morning to you.
[00:00:48 –> 00:00:50] PoojaGood morning, Edmund.
[00:00:50 –> 00:01:17] EdmundWelcome to this little video. ESG is something that we hear all the time, and it’s a big abbreviation. It’s used a lot by a lot of people. Would you like to just give our viewers some background as to what it is and why, if you haven’t heard of it, why you should take ESG seriously?
[00:01:17 –> 00:03:17] PoojaSo, Edmund, I feel that when we started trading, when we started development, when we started to learn about business, ESG was always there because of all business. Initially, I’m talking about the Greeks. I’m talking about the era before the Industrial Revolution. All businesses were created for the purpose of value creation. There was always an exchange of value and how value can impact society, how value can improve or develop our state of living, or can add to our current living standards. But after the Industrial Revolution, there was a lot of focus on profits, the balance sheet indicators. The financial back sheet got more attention than the sustainability and development back sheets. Then there was a switch. Instead of value creation, people started believing in value extraction. That is what we see was happening earlier. Lots of value extraction . That is why we have to go through the climate emergency issues, exploitation, labor exploitation issues, lack of governance issues. I believe now it is time to take a U-turn. It is time to go back to the original concept that is value creation, because that is a pathway of sustainability, and we have to do it soon. We have to do it fast. We have to make a U-turn today and not wait for tomorrow.
[00:03:18 –> 00:03:47] EdmundThat’s very interesting Pooja.  By the way.  I have spent the last 25 years of my life working with companies and students trying to help them understand the importance of value. Value is such an important term in marketing as well as in shareholder value, etcetera. So I think it’s absolutely a very good point. And so what does ESG mean to start with and where does that fit into value creation?
[00:03:47 –> 00:04:16] PoojaSo ESG means Environmental, Social, and Governance. That it is much broader than the full form of this acronym. It is how actions of corporations, companies, consumers, investors and all stakeholders impact the broader society. A lot of people confuse ESG with sustainability, but they are very two different concepts. Sustainability is the destination that we want to reach by our actions. ESG is a pathway, a GPS, to this destination.
[00:04:45 –> 00:05:17] EdmundAnd by the way, you’ve done a very good article on that whole point, I know, for us. So on that very point, Yes, people, please do read this article, which is on our Good Growth Academy blog. You were helpful in helping me understand this. So would you say that ESG is kind of the measurement of our progress to that destination? Is that what ESG is trying to do?
[00:05:18 –> 00:05:51] PoojaAbsolutely. ESG is how we can measure how we can look into that RV on the trajectory that we intend to be on our sustainability course, to set metrics, to set measurement, to set standardization, to set compliances. And we all know that what can be measured can be managed. So ESG is the first step to manage sustainability.
[00:05:52 –> 00:06:17] EdmundAbsolutely. And I think from my point of view, looking at it fairly new, I think, in comparison to you Pooja in the sustainability area, it seems to me that not only has there been an explosion in interest in sustainability, but of course,  also the whole metrics around how you measure sustainability has also exploded hasn’t it? Which is why we hear ESG mentioned so often, especially by investors, for example.
[00:06:19 –> 00:07:37] PoojaThat is so true. That right now, especially during the Covid era and two years before that, the interest in sustainability has exponentially increased. To be very honest, I am in this field when this field was called development economics, and then we graduated into fancy acronyms like ESG, SDGs, SRI, PRI, and all but the hard nice in development economics, how we can make our economy, business and finance revolve around real development. Development is very different from growth. Growth can be measured because it’s a  monetary term. It’s the financial faction: growth accompanied by contribution and improvement and standard of living,  lifestyles, betterment of humanity, betterment of the environment, betterment of governance. That is development. So absolutely, we need to look into ESG from “transparency towards development,” which is growth! Growth is a part of it.
[00:07:38 –> 00:08:07] EdmundThat’s excellent. Thank you, Pooja. And that’s been a really useful conversation for me as well. We will pick up on this subject of growth in our next video. So hopefully that has helped people understand ESG, why it’s important and how it’s different from sustainability. We’ll look at how it links to good growth in our next video. So thank you, Pooja and I look forward to connecting with you again soon.
[00:08:08 –> 00:08:11] PoojaThanks. It was a pleasure being here with you today.

Why a Sustainable Marketing Plan is Essential

Marketing Sustainability
Marketing Planning Sustainable

In brief:

  • Sustainability is a rising business issue that needs to be included in your marketing plan
  • Customers are demanding more transparent sustainability in choosing their provider
  • We explain why and how including it will help you and your brands to grow

The rise and rise of sustainability 

Global investment in sustainable companies (also known as ESG)  has risen dramatically over the past seven years.  In 2014, less than $20 trillion was held as assets under management. In 2020, this had risen to over $30 trillion.

There are now more funds being invested in sustainable companies than in other companies. This rise in investor interest in sustainability shows no sign of stopping. This is a major driver to work on a sustainable marketing plan.

By 2025, Bloomberg estimates that over $50 trillion will be invested, which is about one-third of forecasted total global assets under management (see ESG assets may hit $53 trillion by 2025, a third of global AUM by Adeline Diab and Gina Martin Adams).  The rise of ESG as an accepted measurement system for sustainability has been a key driver in the rise of investor confidence.

At a Government level, there are trillions of dollars being invested in sustainability. For example, in December 2020, the European Union agreed a €1.82 trillion Green Deal to support a green recovery. In February 2021, U.S. President Joe Biden announced a $2 trillion Green New Deal.  The UK Government has committed itself to legally binding targets in its 2008 Climate Change Act and will showcase its efforts at the COP26 UN Climate Change Conference in Glasgow, Scotland this November.  There is also rare cooperation between Western Governments and China on sustainability.

Consumers are also forcing change. A recent report by GfK has shown how environmental awareness and eco-activism are rising across global consumers.  For example, 24% of consumers are now taking prompt measures to cut their plastic waste (see “Eco-activism in FMCG is rising” image below from research done by Growth From Knowledge https://www.gfk.com/). Moreover, the Covid pandemic has driven an increase in environmental awareness as people breathe cleaner air and rediscover nature.

Eco-Activism-marketing sustainability

These changes are driving more sustainable practices throughout supply chains. In the B2B area, work is being done by procurement teams on how to measure supply chain sustainability. Unilever is one company driving its supply chain to become more sustainable and amongst many activities has recently announced that it will be asking its suppliers to add their carbon footprint to their invoices.  Joint programs are underway in many industries to reduce total waste. For B2C consumers and B2B customers, sustainability is becoming a key need alongside needs like cost and brand experience.

Why sustainability needs to be taken seriously by marketers in their plan

Sustainability is reshaping the marketing landscape.

Changing customer needs

Firstly, it is changing customer needs.  Research by GfK (Crisis as Catalyst report, 28 Apr 2021, by Growth From Knowledge ) suggests that consumer needs such as lower waste, preserving nature and more energy efficiency are rising in importance.  In the B2B space, customers like Unilever are demanding better marketing plans and more accurate measurements from suppliers about how they will become more sustainable.  Failure to produce viable plans and track implementation progress could lead to deselection as a supplier.

Sustainability is changing customer demand

The most obvious example of this is in the Electric Vehicle (EV) market where the IEA expects a 13 fold increase in the number of EVs on the world’s roads by the end of this decade. But this is not just happening in the automotive market. According to a 2020 report by Deloitte (Shifting sands: Are consumers still embracing sustainability?between 28-45% of consumers have already bought more locally produced goods, or actively chosen sustainable or ethical brands, or stopped purchasing brands because of sustainable or ethical concerns.  The change in demand is already happening.

These changes are driving the appearance of new segments, new products/services and new competitors.

So where is sustainability in the marketer’s world? Change is being driven by CEOs, by CFOs, by procurement, the supply chain function and new Chief Sustainability Officers, but rarely by marketing.  For the worst companies, marketing is tasked with talking up the meager investment being put into sustainability as a mere tick-box or greenwashing exercise. For the average company, marketing is left with the role of communicating to customers (and other stakeholders) the work being done by others. But for the best companies, like Unilever and Pepsi, marketing plays a key role in re-shaping the sustainable market strategy of the firm and its entire supply chain.

Stephen Mangham, a branding expert and Master at Masters of Scale International, summarizes this well when he says, “The purpose of marketing has always been to produce growth. The role of CMOs today is to produce ‘good growth’ where sustainability is a measurable, customer-driven strategic imperative.”

Why we need sustainable marketing plans

After all your communication efforts over the years, how trusted is your brand on sustainability?  Very trusted? Somewhat trusted? How about not trusted at all! Sadly, according to the GfK report, only 25% of consumers trust businesses to tell them the truth.  This compares to 64% who trust academics, 34% who trust the media and is only two percentage points above celebrities!

It’s time for marketers to stop being the brand spin doctors and to become the brave sustainability do-ers.  Marketers need to help their firm find the best green segments, introduce and grow new greener products and services, change its purpose and reap the rewards from customers, from investors and from available government incentives. The brand will then reflect the true work being done.

The experience of leading companies like Unilever and Pepsi is that being truly sustainable is not a trade-off between profits and planet, it is a mutually inclusive journey that drives stronger growth.

Dr. Pooja Khosla, Vice President of Client Development at Entelligent Smart Climate Investing reinforces this point: “Many businesses are struggling to define the real and measurable impact of their offerings on the environment and society.  Marketers can help achieve this and empower sustainability.”

Sustainable thinking needs to be in most areas of the marketing plan: the mission statement, the financial projections, the market overview, the SWOT, the competitor analysis, the objectives, the strategies, the value propositions, the digital marketing tactics, the resources, the actions, the measurement, and the assumptions.

Doing this develops a better growth path for the company to follow. That is better for the customer, the company, the brands, the supply chain, and the planet.

Developing skills in sustainability is better for marketers as well.  The demand for people with sustainability skills is skyrocketing. I have personal knowledge of a recent master’s graduate in sustainability who was recruited by an international engineering firm and is now working with the United Nations on developing better measurement standards.

Conclusion

Going green is not just for the eco-warriors.  It makes good business sense. Marketers can play a massive role in making this happen. They need to stop being seen as the greenwashers of the past and act more like the leaders of real sustainable change. Marketers need to move from the edge to center-stage in building real sustainable companies built on “good growth brands.” A key tool to do this is a sustainable marketing plan.

We are currently developing such a tool.

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