The Financial Imperative to Better Manage Customer, Employee, and Investor Perceptions
Sustainability has become a table stake for doing business. 90% of organizations are investing in environmental, sustainability and governance (ESG) initiatives, primarily to protect and grow the value of their businesses. To date these initiatives have been led by Chief Sustainability Officers and reported in financial statements. Marketers need to take a heavier hand in creating, communicating, and controlling the ESG story because how those sustainability efforts are perceived by customers, investors and employees can have a bigger impact on firm value than the actual results they produce.
There’s a growing body of evidence that suggests the success or failure of ESG efforts will materially impact their share price performance and the long term value of their businesses, particularly when it impacts financial outcomes in their business and the industry they serve according to academic research.
A bigger concern is the fact that how consumers, employees, and investors perceive a brand’s environmental track record and performance can have a bigger financial impact than the actual results. Three quarters of C-level executives feel pressure to respond to consumers, employees, and investors demand that companies operate responsibly according to a survey by Deloitte. That concern is warranted, because the perceptions of these key stakeholders (an intangible asset) can translate to customer behavior, employee loyalty, and investor actions that materially impact something far more real – the future cash flow of a business. If customers perceive a brand to be sustainable and responsible, they will choose it more and pay more for their products. If they don’t trust a brand, they’ll switch to another or even worse boycott. Eighty five percent of people believe they can be effective in changing companies’ behavior if they band together, and they do that with their wallets according to a survey by Just Capital. Likewise, talent – particularly young data scientists, engineers, and high achievers – will take their skills to the brands they trust. Forty percent of millennials would switch jobs over sustainability concerns according to Deloitte.Investment analysts and fund managers will reward stocks they perceive as being environmentally sustainable. And punish those that are deemed bad actors.
Some brands, like Patagonia, walk the talk of sustainability – and are duly rewarded by customers and investors. “Contrary to the popular paradigm, Patagonia does not do well despite its strong commitment to sustainability. Instead, this company shows that success and mission are not mutually exclusive,” says Neil Bendle, Associate Professor of Marketing at the University of Georgia’s Terry College of Business and a Director at the Marketing Accountability Standards Board. “The company is successful precisely because everyone knows where it stands.”
Others, like Trader Joe’s, Ikea, Tesla, and Apple are largely perceived to be good environmental citizens, while their track record on responsible sourcing, limiting greenhouse gas emissions, protecting the environment and recycling is spotted. For example, Apple has the highest sustainability perceptions value of any brand in the eyes of customers, according to research by Brand Finance, even though the company has been criticized across all three pillars of ESG – from customer privacy violations to employee labor conditions to the sourcing key minerals in conflict zones, the credibility of its carbon neutral claims, emission of greenhouse gasses to building planned obsolescence into its products.
The gap between impressions and performance is material. For example, favorable perceptions of Apples sustainability performance in the eyes of their customers contribute over $30 Billion to Apple’s enterprise value according to the Brand Finance analysis – despite the reaility of its pedestrian performance. This huge sum makes financial sense when you factor in Apple’s financial scale and the price premiums, share of wallet, and loyalty they receive from overly supportive consumers.
The gap between perception and reality applies both ways. Brands like Apple and Tesla, which are perceived to be responsible and sustainable, add billions to their market value. Likewise, Brands that are actually responsible environmental citizens and make a real contribution to the very large resource, emissions, and equality issues in the world will not realize the full value in terms of share price. This is a particular problem for B2B and industrial brands whose large supply chains and production capacity give them economies of scale that can eliminate huge amounts of carbon emissions and dramatically alter labor practices, material choices. For example, lists of the most sustainable brands are dominated by fashion, health, and beauty, cosmetic and consumer package goods companies with large media budgets that tell a great story, but consume a fraction of resources, materials and energy. Meanwhile industrial and fleet management firms like Johnson Controls and Merchants Fleet are using AI and EV technology to help their clients reduce their carbon footprints by ten and twenty percent or more by reducing the carbon output of their buildings, factories, and fleets. For example, Johnson Controls completed a project that is projected to reduce annual carbon emissions in Colorado’s Cherry Creek School District by 25 percent and provide net savings to the school district of $20 million over the next 20 years — all while creating a more improved learning environment, according to Katie McGinty, VP and Chief Sustainability Officer at Johnson Controls. Microsoft is another company that probably doesn’t do enough to promote it’s very strong track record in sustainability initiatives, including committing to becoming carbon neutral, water positive, and zero waste by 2030. This is leaving shareholder value on the table, according to Brand Finance, who estimates that a more concerted effort to communicate its sustainability achievements would add $3 Billion of value for shareholders.
We are nearing the point, if we have not already reached it, where if an organization does not align behind a sustainability agenda (which is not relegated to only environmental concerns but ranges across the complete set of UN Sustainable Development Goals) it can lose the customer and brand equity that provides the basis of value growth. And the bar for sustainability performance is only rising as customers get younger, regulations get tighter, and the calendar closes in on overly optimistic 2030 carbon neutrality targets. As customers get younger, environmentally conscience millennials will increasingly displace boomers raised on fossil fuels, fruit loops and petrochemicals. As regulators align with customer demand, ESG reporting requirements are becoming more stringent, visible and mandatory. For example, The European Union’s Corporate Sustainability Reporting Directive (CSRD) requires more comprehensive transparency on organization’s greenhouse gas emissions across the entire supply chain both up and downstream. And as the window on Carbon Zero commitments closes, firms will be under pressure to deliver on promises or lose credibility and trust.
All this means the emphasis of ESG programs needs to shift from executing the strategy to creating, communicating, and controlling the message to these key stakeholders. Marketing leaders need to become more involved in developing and delivering a clear and consistent message around their sustainability goals and roadmap. Unfortunately, coordinating a narrative across an otherwise fragmented enterprise where sustainability, communications, media, and investor relations live in different silos is a team sport. And in many cases, the players do not play well together. Neil Bendle reinforces the need for better alignment and commitment across functions. “Sustainability is a bit like sports,” says Bendle. “Those that approach it in a timid fashion are the most likely to get hurt, whereas those who really commit can achieve great success.”
How can marketers get this right? The specific role marketing can play in maximizing the impact of a sustainability strategy is still being defined, according to Professor Bendle, who is developing best practices research and case studies to help marketers. But the good news is the core principles of good marketing discipline are extremely applicable.
A clear ESG strategy, consistently articulated across all channels – paid, owned, earned and shared media – targeting the customers, employees and investor audiences that matter will build the trust and transparency required to be viable in the market. An integrated communications model will multiply the impact of good ESG outcomes and mitigate the brand risk and customer trust when inevitable slip ups happen. A cross functional team that includes marketing can effectively vet, govern and avoid the largely self-inflicted wounds (false claims, message inconsistency, and lack of transparency) that are the root cause of most of the worst greenwashing accusations, fines, ad bans, and lawsuits.
Values-based marketing is a big part of the answer. Historically, firms with strong values proved just as successful regardless of marketing dynamics, and that is proving true in an era where sustainability has taken on a disproportionate consumer focus. Many of the best firms started from a position of a strong pro-social narrative, according to Bendle. “For example, Unilever has a social purpose running throughout its work,” he continues. “Another example is Quaker firms which have historically been known for their strong values. This gave customers reassurance that they wouldn’t cheated by the brand because of the beliefs of the company founders.” This explains the how 100 year old brands such as Cadbury’s, Lloyd’s Bank, and Bethlehem Steel found sustained success in the reassurance that their Quaker values translated to their consumer, who felt they wouldn’t be cheated because it’s what those companies truly believed.
Connecting the dots across paid, earned, shared and owned media using a unified marketing communications or connected media strategy approach is another. A Connected Media Strategy in which an organization uses specific levers to connect media, message, and channels effectively and efficiently will maximize the scale, reach, and effect of sustainability communications. “Sustainability cannot live in a silo, just like marketing can’t, and sales can’t because siloes are the killers of effectiveness,” says Chris Moscardi, who is chairing Horizon Media’s Sustainable Media Summit, an annual event focused on using marketing and media to effectively communicate on sustainability. “Sustainability content and messaging need to be woven into everything from corporate brand and thought leadership to customer value propositions to employee engagement initiatives. The CSO (Chief Sustainability Officer) needs to be working with the marketing and communications to drive a consistent message on sustainability across paid media, owned media like web sites, earned media, and media being shared with sponsors, partners and distributors. All need to be cut from the same cloth.”
Personalizing messaging and communications to different consumer, influencer, employee and investor personas is another path – given the wide variety of perspectives and concerns across these stakeholders and the difference in perceptions across age groups. The multi-faceted and complex nature of ESG strategies and benefits actually provide marketers a broad canvas of values and messaging options to deploy according to Neil Bendle. For example, the same investment in solar panels can (truthfully) be portrayed as limiting greenhouse gases, fighting air pollution, creating energy independence for the country, and reducing the firm’s vulnerability to energy supply shocks.
