ESG metrics: Smart, sustainable, reliable

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Investors, regulators, employees and the public are more frequently asking companies to manage their environmental and social impact. The pandemic, racial injustice, rising income inequality and climate change are heightening the demands for capitalism to take account of its stakeholders. Precisely how to meet this growing demand remains unclear. However, one thing remains uncertain: Consumers are becoming increasingly aware of the impact of their shopping behaviors. Brands need to continuously share insights about the sustainability standards and practices they hold themselves accountable for. This will gain consumer confidence and increase customer loyalty.

UC Berkeley School of Law offers a course that addresses the social and environmental challenges of today. The program demonstrates how to incorporate environmental, social and governance considerations into business and investment strategy.

Environmental, Social and Corporate Governance, or ESGs, evaluate a firm’s social and environmental impact, providing companies with the knowledge and tools to become purpose-driven business leaders in their discipline.

There is a real need to explore how companies can use crowd empowerment to drive change and examine why purpose-driven businesses are particularly well-positioned to tackle the world’s biggest problems. In a recent study conducted by Premise, 58% of Premise contributors reported having adjusted their routines or behaviors to live more sustainably. The ability to also capture which environmental issues our society is most concerned with and track how those issues evolve and change over time will help organizations better understand where to effectively invest their ESG efforts in.

ESG metrics were predominantly used until 2013 by impact investors — investors who are purpose-driven and attempting to use their investments to drive positive change in the world.  That has changed as businesses and organizations become more conscious of their overall impact.

To many investors, caring about ESG metrics is a matter of preservation. The goal of cost reduction and securing an energy source is at the core of the ESG investing environment. Meaning, if investors want to continue to be profitable, they need to ensure the resources required still exist in the future. In simple terms, don’t dry out the well of your resources.

Let’s take a look at European consumer goods giant and ESG initiative pioneer Unilever. Unilever sells more tea than any of its competitors, controlling nearly 30% of the branded tea business. Unilever also purchases roughly 12% of the world’s tea overall. Its Lipton brand alone sells roughly $3.5 billion worth of tea every year and has a global market share of nearly three times that of its nearest competitor, Tata Beverages, the owners of Tetley Tea.

Lipton’s success did not come without human and societal costs. Tea workers in parts of the world still often lack access to education, health benefits, protection for illness or pregnancy and are rarely given housing. Tea harvesting also carries an environmental cost, driving deforestation and soil degradation.

Unilever is acutely aware of this. That’s why in 2010, Lipton committed to only using sustainably sourced tea and has been doing so since 2015.

Unilever realized they needed to drive revenue while affecting positive environmental and social change. Once it made the switch, it had to figure out how to make money on their investment.

It began with marketing. Unilever capitalized on the fact that consumers truly care about whether what they consume is socially and environmentally productive, which is what led it to build brand buzz around that. Unilever’s 2017 study revealed that a third of consumers (33%) are now choosing to buy from brands they believe are doing social or environmental good.

This ultimately translated “Brand Love” to financial revenue. Since Lipton had a product that was different, marketing itself as a sustainably made tea, while still being high quality, it could consider charging a higher price to capture consumers who were willing to pay more for a higher-quality tea, thus increasing profits.

There have been hundreds of other academic studies exploring the link between ESG and corporate financial performance. In January 2018, Larry Fink, the CEO of BlackRock sent out a letter to the CEOs of the companies in which BlackRock is invested.

Understanding how a business’s ESG initiatives are perceived in real-time while auditing what a business is currently doing at a hyperlocal level is a key first step toward making the necessary changes that drive increases in sales and profits.

That’s where global crowdsourced data insights platforms such as Premise come in. Premise operates a global crowdsourced data collection network that empowers organizations to get a comprehensive assessment of current initiatives by creating tasks and surveys and putting them out into our marketplace.

Through crowdsourcing, organizations can capture shifting consumer behaviors and changes in attitudes toward companies, specifically, large chain stores. Traditional brands may have been initially perceived as positive agents of change by bringing low-cost products to communities that historically had not had access to them. However, inexpensive labor does so at a large price both environmentally and socially. In order to keep the goodwill necessary to compete, companies must make positive changes in this regard and publicize these changes.

By keeping the public on their side, brands can keep their market share and revenues for their shareholder base, while doing better for the environment and their broader communities.

Ted Pardee is the chief revenue officer at Premise.