Edmund Bradford has been helping organizations grow for over 25 years. His work has covered many industry sectors in both B2B and B2C. He has developed many simulation games that are used in universities to teach business growth. He is also a Teaching Associate at Warwick Business School and a Judge at both UK and international business awards. He has also written extensively on the subject and is the author of a book on how to implement plans effectively
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:
“ESG” is about measuring how the actions of companies, consumers, investors and all stakeholders impact broader society.
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.
If “sustainability” is the destination that stakeholders want to reach, then “ESG” is the measurement of progress towards that destination.
The timings are shown to help you jump in to the video at the right point if needed.
[00:00:09 –> 00:00:48]Edmund: Well, 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]Pooja: Good morning, Edmund.
[00:00:50 –> 00:01:17]Edmund: Welcome 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]Pooja: So, 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]Edmund: That’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]Pooja: So 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]Edmund: And 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]Pooja: Absolutely. 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]Edmund: Absolutely. 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]Pooja: That 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]Edmund: That’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]Pooja: Thanks. It was a pleasure being here with you today.
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.
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.
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.