Stay the course on ESG initiatives

In tough economic times, executives should double down on making the business case for sustainability as it drives operational efficiency, innovation, employee retention, risk mitigation, and sales. Point out that sustainable product sales outpaced conventional product sales last year. They also result in cost savings—reducing carbon emissions saves on energy costs, and reusing components from discarded products in new products improves margins. Our research found one auto company netted $100 million by reusing 2.5% of old parts in new cars and selling 10% to recyclers.  

Finally, cite the operational, regulatory, and reputational risks related to material ESG issues such as climate change. These are real and growing. Industries from coffee to property insurance are scrambling to mitigate the negative financial effects of climate change on their businesses. Companies that get ahead of these trends, including regulatory shifts from voluntary to mandatory reporting, will enjoy better competitive positioning, which is another way executives can justify sustainability spending, even during a recession. 

— Tensie Whelan, director, NYU Stern Center for Sustainable Business 

During economic uncertainty, strategic prioritization is paramount, if only because resources may become constrained. With respect to ESG, businesses must evaluate which risks and opportunities are most material and whether they can feasibly be addressed or capitalized on. Conduct a cost-benefit analysis on ESG initiatives to help ease decision-making amid competing priorities, and then follow up with measurement and monitoring to identify early whether a program is ineffective and needs to be re-oriented. Leaders should also hold off on more expensive ESG improvements that pay off on a longer time horizon, like transitioning a facility to renewables by installing solar panels. 

As anti-ESG discourse has become increasingly prevalent, any stakeholder concerns about criticism of ESG can be addressed through knowledge sharing. Make sure key shareholders and stakeholders understand which ESG issues are being prioritized and why. 

— Anikka Villegas, analyst, fund strategies & sustainable investing, PitchBook

In the current economic climate, leaders should ensure the entire organization shares  responsibility for diversity, equity, and inclusion (DEI) and ESG initiatives. Instead of only holding one group accountable, embrace a culture of collective accountability, move the work away from a “nice to have” toward a “core leadership competency.” All of this should be accompanied by stakeholder maps to communicate who does what, by when. There are a few ways to do this. The first option is to offer financial compensation for people to do this work. The second option is to give incentive through company awards. The third option is to recognize this work through annual reviews. 

There are pros and cons to all the above, and it may be worth doing some focus groups as to what would be most well-received. It is also important to take an organization's culture into account. What does ESG look like in practice? Do the key indicators of environmental, social, governance reflect the organizational values? Consider benchmarking against other organizations. There is so much incredible work being done in the ESG space and we need to know what “good” looks like and build a habit of learning from one another instead of just in competition with one another.

— Diya Khanna, founder, Global IDEA