The Shift from ESG to Sustainability: Companies' Evolving Social Responsibility Efforts
Companies are reevaluating how they communicate their social responsibility efforts to the public. While the use of the term "ESG" (environmental, social, and corporate governance) has declined on corporate earnings calls worldwide, it does not necessarily mean a departure from socially conscious strategies. RBC Capital Markets analyst Sara Mahaffy's research reveals a growing emphasis on the term "sustainability" and related words like "climate" or "decarbonization" that fall under the ESG umbrella. This shift comes as ESG faces increased scrutiny in the political sphere, particularly in the United States.
Connecting Socially Conscious Themes with Business Value
Companies in the U.S., where ESG has faced the most scrutiny, have seen a significant drop in the use of the term on earnings calls. These companies are now striving to align socially conscious themes with their broader business models to demonstrate value to investors. In the last quarter, numerous companies across various market caps and industries have emphasized the dual benefits of advancing ESG causes: not only is it good for society, but it also positively impacts business performance and share prices.
Examples of Companies Embracing Sustainability
Williams CEO Alan Armstrong, for instance, highlighted the importance of sustainability in creating value for shareholders during the company's recent earnings call. Chemical producer LyondellBasell Industries found that implementing systems to improve yield and decrease energy consumption resulted in significant cost savings and carbon emissions reduction. Carrier Global's decision to prioritize sustainability and healthy building trends has contributed to sustained growth and a robust backlog. Lowe's CEO Marvin Ellison emphasized the interconnectedness of productivity and sustainability, while Constellation Energy highlighted its network of clean energy generation facilities as a driving force for its pitch.
Business-to-Business Opportunities
Executives also recognize the business-to-business opportunities that arise when products have a sustainable focus. Engineering company Jacobs Solutions, for example, has a portfolio centered around sustainability-focused themes such as water scarcity, reshoring, and energy transition. Ansys provides engineering simulation software that helps aircraft engine maker Pratt & Whitney transition to more sustainable fuel blends. Even technology giant Microsoft has introduced its "Cloud for Sustainability" offering, leveraging its software ecosystem to assist corporations in making positive strides in their IT, operations, and value chains.
Partnerships and Growth Potential
Packaging company WestRock's CEO, David Sewell, shared an example of how their unique capabilities position them for growth. Through a partnership with Costco, WestRock replaced plastic handles on multipack beverages with fiber-based alternatives, aligning with Costco's sustainability goals. This collaboration also involved automating production lines and increasing packaging speeds. Such partnerships demonstrate the potential for growth when companies prioritize sustainability and meet the evolving demands of environmentally conscious consumers.
In conclusion, companies are shifting their focus from the term "ESG" to "sustainability" and related concepts to communicate their social responsibility efforts. By connecting socially conscious themes with business value, exploring business-to-business opportunities, and forming strategic partnerships, companies can demonstrate their commitment to sustainability while driving growth and meeting consumer expectations.
Conclusion: The Implications for New Businesses
The shift from "ESG" to "sustainability" in corporate communication represents a significant trend that new businesses should heed. This trend underscores a broader shift in the business landscape, where companies are not only expected to operate in an environmentally and socially responsible manner, but also to communicate these efforts effectively.
Embracing Sustainability as a Business Strategy
For new businesses, this shift presents both a challenge and an opportunity. The challenge lies in integrating sustainability into their business models and strategies from the outset. This requires a deep understanding of sustainability issues, as well as the ability to innovate and adapt business practices accordingly.
Communicating Sustainability Efforts
The opportunity, meanwhile, lies in the potential to differentiate themselves through their sustainability efforts. By effectively communicating these efforts, new businesses can attract socially conscious consumers, investors, and partners. This can lead to business-to-business opportunities, strategic partnerships, and ultimately, business growth.
In conclusion, the shift from "ESG" to "sustainability" is more than just a change in terminology. It reflects a fundamental change in how businesses operate and communicate their social responsibility efforts. For new businesses, understanding and adapting to this shift can be a key to success in the modern business landscape.
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