ESG is increasingly not a choice

PepsiCo faces a lawsuit about reducing plastic pollution while broadband providers face new rules to tackle digital discrimination and drive greater equity – both developments in the United States say more about the role of ESG: no longer the new CSR, but something that can impact a company’s resilience and ability to do business in the long term. 

Why ESG matters

Environmental, social, and governance issues are a series of factors considered by investors and the companies they own. Recently, it has been the subject of political heat and has come to mean everything and nothing because of overuse. 

But this trend illustrates that ESG is increasingly not about a cosmetic decision to make a business look good and is instead a set of considerations that companies must make to defend against weaknesses that may become a liability to the business in the near future. 

This is to say nothing of the moral need for companies in the private sector to work toward combating the climate crisis, or for companies to build in greater equality and equity, or for robust and clear governance. 

Check out WARC’s in-depth Sustainability Hub for the full range of knowledge about the topic.

What’s going on

Two major stories indicate the changing state of play: 

• Plastic pollution under fire: In New York, public prosecutors are suing PepsiCo, demanding that the food and drink company reduces its plastic packaging and pay damages. It stands accused of not adequately warning consumers about the impact of single-use plastic and making misleading statements about fighting plastic pollution while increasing its use of new plastic.
  
  It is based on an investigation of 1,916 pieces of waste collected from the Buffalo river last year: PepsiCo brands were the most prominent polluter with a 17% share; McDonald’s (5.7%) and Hershey’s (4.2%) were also significant. The suit comes amid a wave of scrutiny and action against perceived instances of greenwashing.
  
  
• Digital discrimination: Meanwhile, in Washington DC, internet service providers face scrutiny for “digital discrimination” because of race or income as a result of new rules put in place by the Federal Communications Commission. The rules could hold major telcos responsible if access to broadband is “differentially” impacted and encompass decisions about network upgrades, pricing, marketing, and maintenance, the Wall Street Journal reported. Critics of the measure say it will chill investment and could even restrict access to broadband as a result.
  
  “Many of the communities that lack adequate access to broadband today are the same areas that suffer from long-standing patterns of residential segregation and economic disadvantage,” FCC chairwoman Jessica Rosenworcel argued. Explaining the thinking behind the rule, the FCC says that equality depends not only “on the mindset of the actor, but rather the effect of the action.” 

What the stories mean

Political grandstanding aside, both prosecutors’ and regulators’ actions suggest that there is an appetite for redress to punish pollution or to ensure equity. 

While some observers will deride the stories as examples of government overreach or anti-business rules, it is undeniable that a brand’s failures in critical environmental and social areas constitute a weakness that sooner or later will weigh on the company’s resilience and financial performance. 

Ultimately, unhappy investors will demand plugs to ESG leaks by this name or another. Recent research has found that sustainability professionals are increasingly becoming more and more investor-focused as serious resilience and future strategy questions enter their remit. 

Marketers, too, face challenges but also opportunities. Key here is for marketers to help reorient their businesses towards “systemic thinking”, seeing themselves as stewards of a brand within an ecosystem where consumers are as much stakeholders as potential customers. This is a key topic in WARC’s 2024 Marketer’s Toolkit. 

Sourced from the Financial Times, Wall Street Journal, WARC, BBC