Does ESG really drive positive brand perception?

More and more Environmental, Social, and Governance (ESG) commitments are not just buzzwords, they are becoming a vital component in shaping a company's mission. Or at least they should be!

Audiences are putting a high value in real sustainable and responsible practices. It means that companies with authentic ESG commitments, who truly live their values rather than just pay lip service to them, should enjoy the benefits of positive brand perception. In this blog post, we'll dive into the data to understand how a well communicated commitment to good ESG practice can drive positive brand perception with target audiences. We’ll also look at how some brands have got it disastrously wrong.

Unraveling ESG Commitments:

ESG (Environmental, Social, and Governance) commitments refer to a company's efforts to tackle pressing environmental, social, and governance concerns, e.g. ethical issues concerning the world and society we all inhabit, and the specific concerns applicable to a specific business area or marketplace. This can involve activities like slashing carbon emissions, championing diversity and inclusion, and upholding ethical governance practices. With sustainability becoming increasingly recognised and increasingly necessary, businesses that showcase robust ESG commitments can earn trust, loyalty, and a stellar reputation.

The Nexus Between ESG Commitments and Brand Perception:

There is a ton of research and real-world examples that prove a significant connection between ESG commitments and positive brand perception. A McKinsey study revealed that companies with outstanding ESG performance often achieve top-notch financial results and attract the best talent, with ESG leaders demonstrating up to 12.4% higher returns on invested capital. A Harvard Business Review article highlights the link between ESG and earnings, indicating that businesses with solid ESG commitments are seen as more appealing to investors, with high ESG-rated companies experiencing a lower cost of capital.

Perks of a Positive Brand perception fueled by ESG Commitments:

Positive Brand perception driven by ESG commitments, can deliver multiple benefits, such as:

➔Amplified customer loyalty: A 2020 global survey by Capgemini Research Institute found that 79% of consumers are changing their purchase preferences based on social responsibility, inclusiveness, or environmental impact.
➔Elevated brand reputation: A strong ESG track record can boost a brand's reputation among consumers, investors, and the wider public. Stocks of companies that had strong ESG regularly outperform those without. For example, ESG bond funds comprised 10.8% of all bond funds in August 2022. This is up from 7.1% at the end of 2020, showing that more people and companies are interested in investing in companies that care about the environment, social issues, and governance.
➔Exceptional financial performance: Companies with robust ESG commitments frequently outshine their competitors in terms of financial performance and long-term value creation. A study by Nordea Equity Research found that companies with the highest ESG ratings outperformed the lowest-rated firms by as much as 49%, and that 64% of people would “pay more for a product or service that prioritizes ESG”.
➔Resilience: A study by MSCI ESG Research found that companies with strong ESG ratings were more resilient during the pandemic and experienced lower stock price declines.

Brands that are nailing ESG commitments:

Several companies have embraced ESG commitments and reaped the rewards of a shining positive brand perception:

Unilever: With ambitious sustainability targets, Unilever has successfully carved out a position as a trailblazer in environmental and social responsibility, enhancing its reputation and winning the loyalty of eco-minded consumers.

Patagonia: Dedicated to environmental conservation and ethical sourcing, Patagonia has nurtured a devoted customer base that appreciates the brand's unwavering commitment to responsible business practices.

IKEA: The global furniture retailer has consistently demonstrated its commitment to sustainability through its resource-efficient manufacturing processes, use of renewable energy, and focus on reducing waste, thereby elevating its positive brand perception.

Microsoft: With a bold goal of becoming carbon negative by 2030, Microsoft has taken significant steps to reduce its environmental impact while also promoting responsible AI development and digital privacy, showcasing its dedication to ESG principles.

Natura &Co: As the parent company of brands like The Body Shop and Aesop, Natura &Co has placed a strong emphasis on ethical sourcing, environmental conservation, and fair trade practices, making it a leader in ESG initiatives within the cosmetics industry.

Interface: This global flooring manufacturer has transformed its business model with a focus on sustainability, reducing waste, and embracing circular economy principles, earning recognition for its commitment to environmental and social responsibility.

The Dark Side: Rainbow Washing and Greenwashing

Genuine ESG commitments can really enhance a businesses reputation, but only as long as those commitments really are made in good faith – consumers and market places, by and large, can smell a rat when those commitments are flimsy. Plenty of brands have faced a backlash for 'rainbow washing' (insincere or token LGBTQ+ policies) or 'greenwashing' (insincere sustainability promises) their products or services.

For example, BP's YouGov BrandIndex score dropped significantly after the Deepwater Horizon oil spill and greenwashing accusations. A 2021 study found that firms with high greenwashing tendencies experienced negative stock returns, lower profitability, and financial instability.The evidence is now overwhelming that sincere ESG policies made in good faith can be incredibly valuable, but the opposite is true when those intentions are flimsy, surface level or performative. ESG, as its best, needs to be its own reward.

Strategies for Brands to Fortify ESG Commitments and Boost Brand Perception:

Here are some practical tips for businesses looking to strengthen their ESG commitments:

➔Set crystal-clear, measurable goals: Establish ESG targets that resonate with your company's values and goals. Make sure these objectives are ambitious yet achievable, and keep a close eye on your progress.
➔Involve stakeholders: Engage employees, customers, and investors in your ESG journey, and keep them in the loop about your progress and initiatives.
➔Be a beacon of transparency: When it comes to ESG commitments, transparency is paramount. Share your triumphs and challenges alike, and demonstrate your unwavering commitment to continuous improvement.
➔Regularly measure brand perception for both your company and competitor set. Buzz Radar can help with that!

Embracing ESG commitments isn’t easy but it can have a dramatic impact on brand perception, which in turn generate growth, from increased customer loyalty and being able to attract better talent. That said, brand perception should never be the primary reason for ethical business practices – boosting your reputation is a useful byproduct, but ESG policies are an end in themselves and are most effective when they show a genuine commitment to doing our best by our planet, society, employees and customers. When it’s done right, everyone’s a winner.

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