Over the past several years, environmental, social and governance (ESG) initiatives took the business world by storm. The bottom line was no longer all that mattered. Customers and investors alike wanted to know how companies were tackling a host of ESG issues, from climate change to diversity, equity and inclusion.
More recently, the model has come under increasing fire. Political attacks on ESG principles combined with shaky macroeconomic conditions, a stronger push for profit over growth and an energy crisis in Europe gave some companies cover for cutting back on their promises, especially if they weren’t entirely committed from the start.
To be clear, many companies are making great strides in cutting their carbon pollution, an effort that falls under the larger umbrella of ESG considerations. That could include using cleaner energy sources for manufacturing, more environmentally friendly packaging for consumer goods or selecting cloud providers that strive to run the most energy-efficient data centers.
However companies approach becoming a greener organization, the question is whether they are staying true to their pledges, especially as economic conditions tighten. For some, ESG commitments are more about appearances than action. Unfortunately, the 2023 Google Cloud Sustainability Survey suggests that executive resolve is slipping. That, or those who were only in it for the marketing benefit are starting to come clean.
For proof, the survey found that this year, economic pressures have pushed ESG concerns down to the third position on the list of organizations’ priorities, from the top slot they occupied last year. “Many executives point to the macroeconomic environment and pressure from external parties to cut corners in their sustainability initiatives and prioritize client relationships and driving revenue,” the report stated.
Google commissioned The Harris Poll to survey 1,476 VP and C-suite executives from across the world in a variety of industry sectors. The report found that the number of sustainability projects being implemented, as opposed to merely planned, was down 8% from last year.
But if companies backtrack from their obligations, it might come back to bite them. Consumer surveys show that many take a company’s sustainability bonafides into account when making purchasing decisions. Perhaps that’s why some executives favor greenwashing, creating a perception of sustainability without taking the steps to actually prove it.
We decided to dig into the data and parse what’s window dressing and what’s reality, and just how strongly consumers feel about environmental issues.
Consumers want greener brands
As some companies cut or decelerate their environmental programs, data suggests they are breaking with their own customers, who very much value companies committed to the environment (as well as other ESG goals).
McKinsey and Nielsen IQ undertook a five-year study from 2017 through 2022 to determine if consumers really wanted environmentally friendly products. While it’s not a simple matter to provide a single sales metric, the survey found that consumers overwhelmingly want greener products and will pay more for them.
In fact, “products with ESG-related claims boasted a 1.7 percentage-point advantage — a significant amount in the context of a mature and modestly growing industry — over products without them,” the report stated. In other words, consumers are literally willing to put their money where their mouth is when it comes to supporting companies who step up to build sustainable products and more equitable corporate structures.
That study is not alone in its conclusions. A 2021 PwC study of consumer and employee attitudes found that consumers were 80% more likely to buy from an environmentally enlightened company. The same survey found that 57% of respondents didn’t feel companies were doing enough.
Clearly, consumers are concerned and want the products they buy to reflect their values and priorities. Companies certainly recognize that, but is that knowledge translating into concrete, measurable action?
The Google survey suggests that executives may be more concerned with perception, which may be leading to greenwashing. In fact, the Google study found that a vast majority of executives believe that companies are fudging their numbers, and surprisingly, think their own firms do so as well.
“Almost three out of four executives (72%) believe that most organizations in their industry would actually be caught greenwashing if investigated thoroughly. When asked about their own companies’ claims, 59% of executives admitted to overstating — or inaccurately representing — their own sustainability activities,” the report stated.
So how do we get to more accurate reporting to help consumers, investors and regulators see if companies are keeping up with their pledges and whatever the law requires? Well, that’s going to take data, and startups could help with that.
Managing ESG data
A crop of startups has emerged to help companies wrangle and understand the wealth of ESG data that’s often buried deep within divisions or across supply chains.
Part of the problem with accurate internal and external reporting has been that ESG data is diverse and often qualitative in addition to being quantitative, said Charles Assaf, co-founder and CEO of Novisto, an ESG data management startup.
“It is not just structured data, it’s also unstructured,” he told TechCrunch+. “When you combine the lack of structure in the qualitative data with the fragmentation and the variety of topics that it entails, it is a recipe for a mind-boggling kind of problem.”
A host of companies are focusing on solving these problems, including Novisto and Workiva, as well as large enterprise software firms like Google Cloud (the authors of the report cited above), Salesforce and Oracle. As anyone who has worked with C-suite executives knows, finding the right data to feed a dashboard is often half the battle. The right software can help ESG practitioners not only feed execs the right data but also identify places where data quality can improve.
The other half of the battle is getting some executives to understand that ESG isn’t a passing fad.
But that may happen in time as companies are forced to adapt to a changing landscape. “If we really reflect on what’s going on, the major, large asset managers have clearly positioned themselves around integrating ESG factors in the way investment decisions are made,” Assaf said.
It’s not just investment managers who have been pushing for this change, he added. Assaf has heard that beyond investors and customers, insurers and employees are making ESG a priority. Prospective employees are also taking ESG under consideration when deciding where to work.
“Some of these people will not always be on the same par of intensity, but I feel this has become a major driver, whether you like it or not,” Assaf said.
In other words, ESG isn’t going anywhere, and while executives might have other concerns at the top of their list today, they won’t be able to ignore it completely. “I think the train has already left the station a long time ago,” he said.
It remains to be seen whether executives will take it as seriously as consumers, investors and other interested parties appear to be, and if it will cost them if they don’t.