Why ESG is becoming a key driver for brands

Throughout my ‘Brands in the Boardroom’ series, I have advocated that more attention should be paid to the business, financial, and organisational aspects of brand management within the higher layers of organisations. In my first article, I shared some tips on how brand managers can be heard in the boardroom by focusing more on the ‘logic’ instead of only the ‘magic’ (creative) behind the brand. For boards to make decisions on what, where, and how much to invest in the brand, it is vital to understand the financial engineering around brands – which I talked about in my second article. In the third article of the series, I shared my vision for the future of communications and branding. And in the fourth, I dove deeper into why now is the time to unify brand architecture and operations.

For a summary of articles I to IV - see: Brands in the Boardroom | LinkedIn

In this fifth piece, I'll be providing some perspectives on why ESG (Environmental, Societal, and Governmental) factors are becoming key drivers for brands.

The rise of corporate citizenship as a focus for brands: the inextricable link between profit and purpose

In 2019, Larry Fink, Chairman and CEO of Blackrock, published his annual letter to CEOs under the title, ‘Purpose & Profit’. Mr Fink explained that it is no longer sustainable for organisations to only focus on business and financial performance. He argued that the sustainability of a brand’s success is now dependent on its ‘social license’ – for example, the organisation’s ability to be empathetic to the environment and other stakeholders. Within the international corporate communications community, this thinking around corporate character isn’t new at all. My fellow members of the Page Society have been developing this approach for years. In 2018, Page Society president Roger Bolton published his latest book, The New Era of the Chief Communications Officer, addressing the topic.

What was new was that finally, the financial world, dominated by Anglo-American governance, started emphasising the idea that there is more to consider than quarterly results in isolation. From Mr Fink’s letter, you can see that Blackrock understood it was no longer sustainable to focus solely on business performance. Without strong stakeholder relationships and a sense of purpose, a business will no longer thrive. In autumn 2019, we also saw the American Business Round Table publish opinions of senior leaders supporting this view.

The shift from shareholder capitalism to a stakeholder economy is in full swing and will continue to have a lasting impact on the position of brands

This summer, the Page Society published its latest thought leadership piece on Societal Value, a must-read for every communications- and business leader.

Figure 1:

Three Ways to Create Stakeholder Value, Stakeholder Capitalism and ESG, a Guide for Communication Leaders, Page Society, July 2022

With an ever-growing emphasis on the stakeholder economy, people have understood that businesses have a bigger role to play rather than just focusing on profit and shareholder value. Their responsibility, impact, and contribution to the planet and wider stakeholder groups in society have become widely understood. Companies like Meta and Shell are suffering from this shift, as they seem unable to embrace this new thinking appropriately and quickly enough. Investors, on the other hand, have increasingly embraced the new mantra. Stock-rating agencies like Moody's, Fitch, and S&P have acquired many ESG-rating agencies to incorporate non-financial key performance indicators into their stock-rating methodology.

Purpose-led thinking is at the heart of this movement, helping organisations make this shift tangible and enabling them to roadmap activities that will ensure the success of these new strategies. For organisations, this means that the whole brand experience will have to be adapted over time to reflect and express the new direction, market positioning, and beliefs.

Impact of ESG on brands now and how important it will be in the future

We've entered the stakeholder economy, where the focus is no longer only on investors and customers but wider to include employees, the environment, and society. For organisations, this implies that long-term brand building – to create awareness and empathy across stakeholder groups – has become significantly more relevant. Binet & Field’s work on the long and the short of brand building resonates with many board members, helping them understand the need to invest more in long-term brand building and not just short-term sales activation.

Figure 2:

Brand building and sales activation work over different timescales, Binet and Field, IPA

Reporting on ESG: increased transparency is influencing the appetite for the unification of brand portfolios

The increased transparency that we are seeing has been significantly driven by digitalisation and a societal, customer-driven desire for a greater understanding of who is behind any given brand and what their motives are. This becomes very clear looking at the increasingly prominent role played by non-financial performance reporting, as currently laid out in ESG regulations such as the EU’s Corporate Sustainability Reporting Directive (CSRD). The increasing complexity of compliance and reporting requirements means that having many brands makes it more difficult (and expensive!) to be ESG-compliant. Re-assessing brand portfolios with a view to streamlining and simplification will be an increasing trend going forward.

My advice for brand and marketing leaders going into 2023

The shift to the stakeholder economy will be a lasting one and should be a focal point in any organisation’s future strategy. Yet, we’re seeing examples where the pendulum is possibly swinging too far – for example, at Unilever, where under the leadership of Alan Jope, it’s been a mantra for a long time. In 2019, months after starting as CEO, Jope famously said, "brands without a purpose will have no long-term future with Unilever." ?As a result, they faced shareholder pressure for potentially having prioritised purpose over business results. This is only natural, in my opinion, and especially if business performance – as it is in Unilever’s case – is lagging behind that of their peers.

Focusing on both purpose and profit will remain a balancing act and – with the huge impact of geopolitical developments (i.e., the war in Ukraine, energy supply and disruption of supply chains) – be more challenging than ever before. For brand leaders, this means that re-assessing their brand’s positioning and orientation toward multi-stakeholder groups is crucial, and the role of brand in strengthening the relationship between an organisation and its stakeholders has never been more important.