With climate change firmly front-of-mind for consumers, employees and governments, how can businesses become more sustainable to not only help the planet, but also to attract the best and brightest talent?
The United Nations has called it “the defining issue of our time”. With activists such as the teenage Greta Thunberg bringing the climate change emergency to the G7 and Extinction Rebellion bringing the streets of London to a standstill, the issues around climate change and sustainability are very much in the public consciousness.
As the public wakes up to the challenges around the environment, so too do shareholders, consumers, employees and governments. They are asking business what it is doing to combat the effects of global warming.
“Investors are moving us this way,” Brian Gilvary, chief financial officer of BP told the Confederation of British Industry (CBI) conference in London. “ESG (Environmental, social and corporate governance) makes up 50% of the conversation we have these days.”
According to the WEF Global Risk Report for 2019, the “failure of climate-change mitigation and adaption” is the second most impactful risk in the world. Investors and customers – particularly Millennials – are putting pressure on companies to demonstrate that they have a social and environmental conscience at the heart of their business.
Conscious consumerism: what it means for business
“The growth of conscious consumerism is putting businesses under pressure to demonstrate their purpose, in order to maintain competitive advantage,” says Francesca Rivett- Carnac, co-founder of Stand Agency – a communications and impact relations agency that works with brands and charities.
Price, product and service are givens, she says. Younger consumers now expect brands to show they are acting in the best interests of sustainability, transparency and fair employment. “This shift in consumer mindset is fuelling a rise in new market entrants who are putting purpose at the heart of their business from the outset, across sectors as diverse as financial services, fashion, health, food and drink,” she explains.
“It’s not difficult for investors to see the opportunity. The success of impact investing has already helped to challenge perceptions that purpose comes at the expense of profit. Global businesses like IKEA, Unilever and Patagonia are demonstrating that it’s possible to make a positive social and environmental impact while maintaining a healthy bottom line. Purpose-led businesses are having a moment.”
The dangers of woke-washing
With the promise of stronger social capital and customer loyalty, it’s tempting for some brands to try to capitalise on this movement without really committing to social or environmental change.
The changes need to be more than skin- deep, they need to be real and sustained, otherwise, consumers and staff will quickly spot the gap between words and actions, says Ms Rivett-Carnac. In the trade, this is known as ‘woke-washing’ – consumers and employees can spot it, and they resent it.
“Genuine purpose-driven businesses will track and measure their social and environmental impact, and communicate it regularly to customers, investors and other stakeholders,” she adds.
The impact of global business
Jonatan Pinkse, professor of strategy, innovation and entrepreneurship at Alliance Manchester Business School, says oil and gas companies, car manufacturers and energy companies are already feeling the impact of climate change pressure, but all industries will, in time, have to change and adapt.
“Climate change has been impacting certain industries for decades because those sectors have played a big role in causing climate change in the first place,” he says. “The likes of oil and gas companies and car manufacturers are prime examples. Their contribution towards climate change means they have really felt the pressure from governmental bodies over the past 20 years.
“More recently, however, we’ve seen energy companies start to be impacted. Their reliance on electricity lines to transfer power to homes means that, when large-scale storms and hurricanes hit, those power lines are usually affected. “Looking ahead we’re likely to see more food and drink companies feel the effects of climate change. Many in the sector are now starting to realise that they have to deal with changes in the natural environment to grow crops and livestock and are working hard to innovate how they produce their goods.”
Proactive change and risk mitigation
Mr Pinkse explains that the industry that was aware of the effects of climate change the earliest was the insurance sector. It quickly realised that payouts made following a natural disaster caused by climate change, such as flooding or hurricanes, would have a big impact on the business.
“Reinsurers, the insurers who insure the insurance industry, started talking about climate change 30 years ago – a decade earlier than any other sector. Recent evidence has shown that the oil industry was also aware of climate change early on and decided to keep it silent.”
The car industry has also been proactive. “For example, we’re seeing car manufacturers working on the technology needed to power electric vehicles, rather than waiting for the charging infrastructure to be built,” adds Mr Pinkse.
He says risk mitigation planning is a collective responsibility and industries have really started to wake up to that, sharing best practices among each other–a step in the right direction.
“The most important thing that businesses need to do when drawing up an environmental risk assessment is acknowledging that this isn’t just a normal risk,” he explains. Existing risk management practices don’t work when it comes to environmental hazards.
“Companies need to develop new ways of dealing with the risk presented by climate change, which will be unique to each business. It takes real effort, but it’s vital for our environment.”
ESG businesses will enjoy millennial support
Your staff, customers and investors include Millennials, and it is this generation who are most attuned to the social and environmental impact of the business they work for or buy from. They have a genuine interest in knowing whether a company has a policy on sustainability and look to management to incorporate and demonstrate a sense of value and purpose.
Without this, businesses will struggle to attract talent from this generation. “With Millennials, we see differences in the awareness of issues like ESG and diversity – they seek out services and products that enable them to implement their views,” says Hector McNeil, co-CEO at HANetf, which provides investment products to European customers.
Companies with pension funds also need to think about how they manage pension money. At the beginning of November 2019, the revised EU Shareholder Rights Directive was implemented. This means that every trustee of a pension fund with more than 100 members will be liable for the disclosure of all climate-related links.
“The message is clear: purpose-driven companies are the future,” says Marga Hoek, a global thought-leader on sustainable business, international speaker and the author of TheTrillionDollarShift, a new book revealing the business opportunities provided by the UN’s Sustainable Development Goals.
“Young people, who will be most of the workforce soon, want to dedicate their time and talents to a company with a soul, a company that contributes to a better world, and that applies to any business sector,” she says.
The same applies to Generation Z, which follows Millennials (or Gen Y), but even more so. This digitalised generation (born with the iPad), seeks connection, meaning and purpose. “By 2025, Millennials will account for 75% of the workplace, and 88% of Millennials want to work in a purpose-driven company,” says Ms Hoek.
“Millennials are nearly twice as likely to make purchases because of a brand’s environmental or social impact.” What’s more, 73% are prepared to pay more for sustainable goods. This is a much higher percentage than the older generations. Sustainable brands are now growing twice as fast as non-sustainable brands.
Big business goes green
Nine years ago, Unilever created the Unilever Sustainable Living Plan, which was designed to nurture brands that were sustainable. Now, the company has gone further, with the new chief executive Alan Jope pledging only to invest in sustainable brands and to only buy sustainable companies to add to its portfolio.
Unilever has revealed that its most sustainable brands grew 46% faster than the rest of the business and delivered 70% of its turnover. The company has also warned that it will sell off brands that do not contribute positively to society, with Mr Jope explaining that consumers wanted to buy brands that have a “purpose”, too.
Unilever is now devising sustainable business plans for its portfolio of more than 400 brands, with Marmite, Magnum and Pot Noodle thought to be among the businesses that might not remain with the group long term.
“Principles are only principles when they cost you something,” Mr Jope says. He also warns against brands that try to appear environmentally conscious (known as being ‘woke’) when they are not actually making fundamental changes to the underlying business. He says that some brands are guilty of ‘woke-washing’ in advertising.
Brands that are failing to take real action are “polluting” the sense of purpose that others are genuinely trying to achieve. The message for business is clear – your staff, customers and investors want to know what your strategy is for sustainability and environmental commitment. They need to know what your purpose is and how you intend to put words into actions. Grand gestures are no longer enough; concrete action is needed. Making promises but failing to keep them will do long-term damage to the reputation of your brand.