In 2019, we saw a global pandemic disrupt supply chains and reorganize manufacturing processes while companies struggled to get products on shelves. Amid all the chaos, sustainable practices took a backseat in favor of single-use plastics recommended by local health authorities. With the gradual return to normalcy, it's time to take a step back and reconsider green company practices that were temporarily put on hold.
ESG, also known as Environmental Social Governance, is shifting consumer and investor mindsets and most importantly the manner in which businesses operate. Environmental, social, and governance issues have always been part of how companies do business, but recent years have shown that this responsibility can be turned into a competitive advantage.
While often seen as a buzzword, corporate responsibility is no longer taken lightly. Not only are companies facing increasing regulations and pressure from consumers to uphold ethical standards, but doing so allows them to win trust by providing goods that can not only improve their public image but also drive additional business objectives.
The question remains, what do ESG standards mean for e-commerce business models? And how can e-commerce organizations make ESG a core consideration in their long-term operation strategies? Or do they even need to do so? Let's take a closer look at e-commerce and the role of ESG in driving responsible business practices.
At its core, ESG stands for environmental, social and governance. Introduced by a monumental study conducted by a non-profit organization called the Global Impact, ESG was presented in 2004 as a methodology to evaluate companies and countries on their level of sustainability in a report titled “Who Cares Wins – Connecting Financial Markets to a Changing World”. Combined with the “Freshfield Report” by UNEP/Fi, these two articles provided a framework for the Principles for Responsible Investment (PRI) at the New York Stock Exchange and the launch of the Sustainable Stock Exchange Initiative (SSEI) in 2007.
Together they have argued that the incorporation of ESG strategies into the capital markets facilitates sustainable and productive business practices, leads to positive outcomes for investors, and improves societal well being.
The first pillar of ESG governance measures a company’s environmental footprint. To be considered sustainable, companies must use energy efficiently, reduce pollution, limit waste production, and responsibly use natural resources. In addition, ESG companies are measured on their environmental improvement initiatives, such as the production or use of electric cars and the use of renewable energy sources.
The social criterion asks the question: how do people and institutions in the community appear in terms of the business relationship? This involves considering a company’s social impact through daily operations, such as labor practices concerning diversity and inclusion and employee health and safety.
The last pillar, governance, refers to the system established by a company to serve the needs of stakeholders, ensure its compliance with local and national laws, and make decisions. Common practices external auditors use to determine a company’s performance include accounting policies, corporate governance, and executive pay bands.
Online shopping has exploded over the past decade, and with good reason. E-commerce has shifted how consumers shop, allowing them to purchase goods with a click of a button to be conveniently delivered to their doorstep. Forecasted to grow by 16.1%, e-commerce businesses are set to reach $1.06 trillion in 2022 reflecting a strong demand for online shopping in the post-pandemic world (Phaneuf 2022). However, it comes as no surprise that convenience comes with a price, in this case, a rapidly expanding environmental footprint.
According to a study conducted by BCG and the World Retail Congress, “retailers are among the biggest contributors of plastic packaging, which represents 40% of global plastic usage. Additionally, the green supply chain is not yet a reality in the industry; retailers’ supply chains are responsible for more than 25% of global emissions” (Unnikrishnan et al. 2022).
While these numbers may seem large they show no signs of dropping. It thus becomes apparent that from carbon emissions produced during the production process to leftover waste resulting from unsustainable packaging, e-commerce businesses need ESG management structures in place now more than ever.
ESG offers long-term value creation opportunities and should continue to be an important consideration in decision-making processes. Contrary to popular belief ESG governance is not just good for the environment; it’s also good for business. Here’s how ESG impacts company growth.
Now is the time for companies across all industries to take note of the changing landscape and recognize that green initiatives can show profitable returns. Consumers are increasingly becoming more conscious of their buying choices. They want businesses to walk the talk - implement ethical practices and support more sustainable manufacturing goals and processes. By investing in and implementing green initiatives, companies of all sizes can tap into a new market segment, satisfy increasing consumer demands, catalyze brand visibility and differentiate themselves in the marketplace.
An ESG proposition reduces operation costs by lowering energy consumption, minimizing water intake and simplifying waste management. Shifting the way a company is conducted will not only create more capital in the long run but will also boost a company's reputation and its bottom line.
Transparency and open communication are the key ingredients for a healthy relationship with your shareholders. Today's investor wants to not only know that the company he or she is placing money in is a profitable business, but they also want to know what that company can contribute positively by adopting ESG management practices.
Companies with a sound ESG record can gain strategic freedom from regulators by offering stronger external-value propositions. The implications of this are profound. Strength in ESG can help reduce the risk of adverse government action and engender support from policymakers, helping companies reach their goals with fewer roadblocks in the way.
Progress is key to keeping a supply chain running smoothly. Companies must identify potential vulnerabilities and take appropriate steps to avoid disruptions by adopting sustainable practices. A supply chain hit by sudden shortages of materials or one that can't adapt quickly to changing consumer demand will struggle to maintain its competitive edge in this new economy.
The challenges of ESG have become increasingly relevant over the last few decades. As such, companies find themselves under greater pressure to manage ESG risks—and opportunities. In addition to increasing competitiveness, lowering risk and complying with new regulations, companies will gain ground with consumers and investors by emphasizing their environmental and social responsibility. There is no doubt that setting up sustainable practices is key to achieving long-term success, however, how does one become an ESG company?
Acknowledging a need for change is step one toward building out an ESG strategy. Step two requires companies to develop a plan using the following steps.
This process should include the complete lifetime of a product, from raw materials to manufacturing to distribution and disposal. Companies should examine their sites as well as those of their suppliers to identify social and environmental impacts while keeping in mind how consumers close the cycle. Some questions to consider include: what industry framework is the company working within and what are its limitations, what pain points is the company responsible for creating, and lastly how are competitors approaching these concerns.
Once the key issues have been established it’s time to filter and rank each of the company’s pain points. To evaluate each issue, the company must assess both its materiality and whether the company has the ability to control and influence the outcome. This will help create action programs to meet corporate objectives.
ESG sustainability requires companies to reimagine the way they position themselves, conduct business, and create product offerings. However, driving change requires partnerships. As such collaboration is essential for creating a sustainable business model. In order to tackle large-scale social and environmental issues, it is necessary to look beyond internal operations to create new ecosystems of stakeholders and collaborators who can help the business achieve its goals.
Transparency is an approach valued by consumers, investors and regulators alike. Celebrating progress is important however acknowledging growth opportunities demonstrates a commitment to positive change. By creating a narrative around the impact of ESG initiatives, companies stay accountable and enable themselves to steadily progress towards their vision.
The biggest ESG risk companies can make is ignoring the worldwide call for action. Companies should make environmental, social, and governance concerns a core part of their strategy—not as a distraction but as a source of value. ESG can create value by helping companies strengthen their customer relationships, reduce production costs, improve operational efficiency and effectiveness, guide resource allocation decisions, and enable better communications with investors and governing bodies. With growing awareness there is no better time to make a positive ESG impact than now.
In a time of unprecedented global uncertainty, planning for the future may seem redundant – but in reality, planning has never been more essential.
Although many organizations are now incorporating informed decisions in regard to marketing budgets, very few were able to measure their ROI on their marketing spends and treat this process as a priority. Throughout 2020, research carried out by Gartner discovered that just 54% of organizations based major marketing decisions on the results of data analytics.