In today’s world, businesses are increasingly recognizing the importance of integrating environmental, social, and governance (ESG) criteria into their operations. ESG represents a set of standards for a company’s behavior across three areas—environmental, social, and governance—that investors, consumers, and employees use to evaluate corporate responsibility.

To be clear, there are many conservative people and brand leaders who despise ESG and even try to remove it from their brands or make it illegal (just like many are attempting to make DEI illegal within public institutions or their private brands). It’s shameful and it indicates a real disconnect between profit-driven companies and the communities they serve. It also indicates a lack of understanding about how profitable companies can improve and better themselves and pursue objectives that are clean, green, and ethical.

But a lack of conservative understanding doesn’t mean progressive companies should stand by and watch it happen, or that they should shy away from implementing their own strong ESG standards because they don’t want to lose a particular (though conservative) investor.

In fact, this is the time to be loudly proclaiming your ESG standards and standing by them 100%. By prioritizing ESG, businesses are positioning themselves not only for profitability but also for positive impact, benefiting communities, shareholders, and the planet alike. These are positive and immensely helpful measures and criteria that businesses should embrace.

What Does ESG Mean?

The acronym stands for environmental, social and governance and is a broad perspective or lens through which you can measure how you're doing as a company to support the earth, your community, and the way you lead.

1. Environmental (E): This component measures how a company impacts and manages resources related to the environment. It includes practices like carbon emissions reduction, waste management, renewable energy adoption, and resource efficiency. Companies with high environmental standards aim to minimize their ecological footprint and address climate change. (Hint: carbon offsets are a form of greenwashing and are NOT considered valid or useful practices and should be avoided; instead, opt for real environmental supports such as changing from a polluting vendor or switching ingredients in your products.)
2. Social (S): The social aspect of ESG encompasses a company’s approach to people and society. It considers employee relations; diversity and inclusion in hiring and promoting; fair and equitable wage practices; positive and lasting community engagement; customer privacy; and respect for human rights. Socially responsible companies foster a positive impact for their employees and the communities in which they operate through their actual practices, policies, and marketing words and phrases.
3. Governance (G): Governance refers to a company’s leadership, ethics, accountability, and transparency. It includes elements such as board diversity, executive pay, ethical business practices, honesty in labeling and marketing, and shareholders' rights. Good governance ensures that a company operates transparently and aligns its objectives with its stakeholders' interests (not just their shareholder's investments).

Why ESG Matters Today

The ESG movement is more than a trend; it’s a shift in how businesses operate, fueled by skyrocketing demand from stakeholders such as customers for true and actionable accountability and responsibility. Businesses that adopt ESG principles not only strengthen their brand image but also reduce risks, become more efficient, and attract more customers and better team-members.

1. Investor Demand: Investors are increasingly looking at ESG performance as a measure of financial resilience. They recognize that companies with strong ESG performance are more likely to manage risks effectively, adapt to regulatory changes, and maintain long-term profitability. In fact, ESG-focused funds have surged globally as investors (rightfully) prioritize sustainable and ethical investment.
2. Consumer Expectations: Consumers today are more informed and they make their buying decisions based on a company’s ESG record. Customers support brands that align with their values, and many are willing to pay extra for products from well-regarded, transparent, environmentally and socially responsible companies. A 2021 study showed that 83% of millennials, a huge consumer base, consider ESG factors when choosing where to spend their money.
3. Attracting Team Members: Employees are increasingly looking to work for companies that reflect their personal values, particularly around sustainability, diversity, and fair practices. A strong ESG commitment can become a significant competitive advantage in recruiting and retaining talent. Companies recognized for responsible practices can foster a culture of purpose and engagement, improving job satisfaction and loyalty.

The Benefits of ESG for Businesses

Don't let your conservative uncle fool you: ESG is good for business. It's especially valuable if you are a certified or aspiring B Corp, but equally important for all businesses:

1. Risk Management: ESG-oriented businesses are better equipped to identify and manage risks, especially in our climate-risky world. By focusing on environmental sustainability, companies can avoid costly regulations, fines and potential environmental liabilities. Socially responsible companies reduce the risk of labor disputes and negative publicity. Good governance looks ahead, adjusts to meet environmental needs, and minimizes the risk of financial scandals and unethical practices.
2. Financial Performance: Studies have shown that ESG-conscious companies tend to outperform their peers financially. A company’s ESG score can be a reliable indicator of stability and long-term performance. For example, companies that proactively address environmental concerns often reduce waste and energy use, resulting in cost savings. Similarly, well-governed businesses typically have lower levels of regulatory penalties and legal risks.
3. Brand Loyalty: Companies that commit to ESG are building deeper relationships with consumers who support businesses aligned with their values. Brands like Patagonia and REI, which emphasize environmental responsibility, have developed highly loyal customer bases. A commitment to ESG signals that a company cares about more than just profits, which resonates with those looking to support responsible brands.

Challenges and Criticisms of ESG

While ESG has significant potential, there are also challenges that come with implementation:

1. Data Transparency and Standardization: One of the primary issues with ESG is the lack of standardized metrics and reporting. There is no one-size-fits-all benchmark or measurement for what is "good" ESG. Different organizations might measure ESG factors differently, making it challenging for investors to compare companies accurately. Efforts are underway to create more uniform standards, such as those by the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB).
2. Greenwashing: Some companies may engage in "greenwashing"—presenting themselves as more environmentally or socially responsible than they actually are. This erodes public trust in words such as sustainable, natural, organic, environmentally friendly, and conscientious. It's essential for a brand to use a credible third-party audit to report its ESG performance.
3. Short-Term Costs: It's true: it's expensive to do things right. For some businesses, implementing ESG practices may require significant upfront investments, such as updating facilities or reconstructing supply chains (read: firing one vendor and hiring another). However, the long-term benefits, from operational savings to brand reputation, often outweigh the initial costs.

ESG as a Step Forward for Businesses

Who wouldn’t want to be hired by a company who truly values you as an employee? Or work for a brand that does everything it can to keep its environmental footprint lower? These are real issues with tremendous consequences, and many job-seekers and leaders value ESG companies over those that are trashing the planet and squeezing women out of an equitable opportunity.

ESG isn’t just an optional strategy; it’s rapidly becoming essential for businesses that want to succeed in today’s complex and conscious market. Companies that prioritize ESG are better positioned to adapt to future regulations, navigate challenges, and maintain strong relationships with their stakeholders. Furthermore, as the ESG movement continues to grow, it’s likely to reshape industries by setting higher standards for what it means to be a responsible business.

By investing in ESG, companies make a proactive choice to align their profit goals with positive social impact. This approach not only enhances their own resilience but also contributes to building a more sustainable and equitable global economy. As businesses across sectors continue to recognize the importance of ESG, the movement will undoubtedly drive positive change, ensuring that businesses truly serve all stakeholders—not just shareholders.

Business & Strategy Planning

Selle Impact Consulting offers multiple ways to learn about brand certifications as well as to plan and implement your business strategy and programs.

Our online course Natural Brand Certifications teaches you about the wide variety of environmental and social commitments your business or brand can make, including B-corp, organic, fair trade, WBENC, and cruelty-free.

We will coach your business through these processes and help you strategize and build a solid certification business plan. We support strategy and business planning, leadership coaching, project management and fractional services, and workshops & trainings.