This article is the first in a series that addresses the importance of Environmental, Social and Governance factors in an organization.

In just the last few years, there has been a sea change in how corporations approach sustainability and environmental protection, with many major companies placing a much greater prioritisation on their environmental initiatives and their eco-friendly image.

Microsoft has acquired 2.5 million tons of carbon for removal and has recycled it into marketable products. White-shoe law firms have created independent practices dedicated to environmental sustainability. The Bank of America has funded renewable energy projects under the company’s Environmental Business Initiative. 

What’s the point? Isn’t Corporate Social Responsibility (CSR) enough? 

We’ve seen the term ESG – Environmental, Social, and Governance – sweep the business world, appearing in newsstands to annual company reports. It has been argued that compared to CSR, ESG provides a more quantitative measure of the overall sustainability of an organization. 

Essentially, ESG highlights three factors that explain a company’s impact and added value on environmental, social, and governance factors. Despite their ostensible ambiguity, they all highlight one goal: furthering the sustainability of an organization.  

The “E” – Environmental – highlights the impact a company or organization has on their natural and physical environment, as well as concerned stakeholders. “Social” encompasses how a company manages its relationships with stakeholders – such as employees and customers – and the overall well-being of their organization. “Governance” regulates how a company complies with policy, through audits, and training of the company’s leadership. 

As advocated by late UN Secretary-General Kofi Annan, ESG was pushed to political and economic forefronts following the UN study of “Who Cares Wins” – indeed, we can see that those “who care” have indeed won. This highlighted the growing demand for climate action amongst consumers and policymakers, and has resultantly made the “E” in ESG critical for industries and enterprises to thrive in the present – and survive the future.

In addition to considering the natural and physical environmental impacts, the Environmental aspect of ESG considers the utilization of natural resources and the company’s operations in an environment. Particularly with the increasing effects of climate change and the unprecedented impact of the global pandemic that has led to disruptions running amok, there is an even greater need for companies to adopt a strong, environmentally sustainable framework. Neglecting this, a company can lose control, damaging any frameworks in place for coping with seismic and uncontrollable changes in their environment.

Companies can increase their investment in green and sustainable initiatives, and further, examine the compliance of their actions. For example, a clothing company might seek to re-analyze its supply chains, or a car company might re-evaluate its impact and efforts to reduce carbon emissions. The possibilities for increasing environmental sustainability are infinite, yet, the number of resources to be wasted are finite, and decreasing by the day.  

This is illustrated in shoe giant Adidas’ mission to be plastic-free by 2024, in addition to launching eco-friendly sneakers such as the 100% recyclable Futurecraft Loop. The top-selling Ultraboosts have also had a green makeover. Based upon a new design released earlier this year, the shoe contains recycled yarn containing 50% Parley Ocean Plastic, using upcycled waste sourced from beaches in coastal communities. What’s more, a QR code is attached to the tongue of the shoe to allow a customer to take it back to the store for further recycling. 

These decisions not only decrease costs and protect brand image, but they further demonstrate the company’s commitment to ESG and has been viewed favorably by customers despite its lofty price point of £125: following its new release, sales have skyrocketed by 31% – they’ve done something right. 

ESG strengthens brand image and attracts investors. But the increasing popularity of environmental sustainability has made businesses prone to greenwashing and data fraud, endangering corporate health and integrity. The urge to come out in front of the ESG race has pushed numerous companies to their limit, attempting to “greenwash” – an unjustified claim used to deceive consumers in believing that a company is environmentally friendly – at the expense of their reputation. One such example is Nestlé. 

Despite their commitment to 100% of their packaging be reusable or recyclable by 2025, instead of incrementally reducing the amount of plastic waste they produce, they have been found to burn plastic waste to reach their goal. As a result, the toxins released have polluted the environment, endangered people’s health and harmed wildlife. In essence, Nestlé have attempted to reach their goal at the expense of their reputation, key stakeholders, and ironically, the environment. 

The result? A dive in attracting foreign investment, numerous allegations and investigative reports conducted by organizations such as Reuters, Greenpeace, and authorities in the Philippines – with more to come. Pushing for environmental sustainability may be an admirable goal, but this case should serve as a cautionary tale for businesses glamourising their destructive practices. 

The explosion of ESG is not without reason: it acts as a lure for foreign investors, a shiny sheen for a company’s brand image, and a sustainable framework for companies and organizations to adopt to reduce risk and strengthen profit growth. However, customers should exercise healthy skepticism in understanding the environmental practices of a company to avoid being misled by greenwashing or data fraud. 

Larrissa Leung

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