Companies today are increasingly aware of the need to be responsible across environmental, social and governance (ESG) matters. Indeed as of 2020, according to KPMG, 96% of the world’s 250 largest companies reported on their sustainability performance using the Global Reporting Index (GRI). However, despite this positive development, the current urgent social and environmental challenges and increased pressure from governments, investors and the younger, more socially and environmentally aware generation mean that businesses are expected to go beyond the bare minimum. These different groups now want companies to champion ESG issues and have proactive and ambitious targets on them.
There are three main areas that this applies to:
- Social activism
- Responsibility in conflict areas
An increasing trend in global percentage of people eager to pay more for sustainable goods
Source: Nielsen, 2015
- Beyond environmental targets
All sectors of society have a role to play in mitigating the effects of climate change. For their part, companies are a significant contributor to global emissions, with just 100 businesses being responsible for more than 70% of emissions since 1988. Today, numerous organisations have developed environmental targets, some more hard-hitting than others. In 2019, 354 of the companies which make up the S&P 500 had climate-related goals. However, the need for corporations to have more ambitious targets has become urgent. The Intergovernmental Panel on Climate Change (IPCC) has explained that for the world to reach net-zero emissions by 2050, there would need to be a 45% decrease in emissions from 2010 levels to 2030. Several countries, such as the UK have outlined ambitious net-zero plans, and businesses are increasingly under pressure from governments and consumers alike to demonstrate their dedication to the health of our planet. Yet, so far in 2020, only 19% of the G250 (the world’s largest companies) had a specific net-zero target.
Source: GWI, 2019
2. Beyond social responsibility
2020, with the awareness around Black Lives Matter (BLM), gave rise to the idea that companies, within themselves, and externally play a role in perpetuating or challenging social norms. Multinational firms, particularly in the US, were quick to make statements supporting the BLM movement and, in some cases, made financial contributions to them. For example, Nike released communications and pledged to donate 40 million USD to issues around the movement. In addition, the company and many others faced internal reckoning on diversity behind its doors and stated that it would do more to increase diversity within its workforce. This focus on companies and activism is here to stay, as according to a study by Edelman, 60% of millennials globally only purchase products that cohere with their social beliefs.
3. Beyond do no harm
Today, numerous companies operate in or have business relations with others working in conflict or fragile post-conflict contexts. In many such sensitive places, some businesses simply adhere to international guidelines on issues like human rights, while others exacerbate the tense situations they find themselves in.
Fragility in the world 2021
Source: The fund for peace, 2021
However, leading businesses operating in these areas focus on not aggravating the situation and secondly make efforts to improve and perhaps address the underlying issues of the conflict. For example, through its reviving origins program, Nespresso focuses on re-energising the coffee industry and economic growth to support stability in places such as South Sudan, Columbia, and the Democratic Republic of Congo. Burberry also has focused on contributing positively to Afghanistan. It has partnered with Oxfam and PUR project to improve opportunities in the country by assisting Afghan farmers with cashmere production.
This focus on global companies conducting themselves in an improved manner, particularly in fragile conflict environments, has been at the centre of several campaigns in Europe. The trend is set to continue. In Switzerland, in 2020, an initiative to hold Swiss companies responsible for environmental and human rights infringements abroad was put to the vote. The vote did not pass, but the Swiss parliament enacted stricter legislation, particularly for companies extracting minerals from conflict zones.
More and more governments, investors and consumers believe businesses should strengthen their efforts across a range of ESG issues. However, the move in this direction is not as fast as many would like and the examples highlighted above are more the exception than the rule. As the consumer base starts to change with millennials and gen z becoming significant spenders, we can only expect this trend and expectations for businesses to continue to grow.