In times of economic recession, executives may be inclined to reduce their ESG initiatives, but the short-term cost reductions could impede a company’s long-term prosperity.
co-founded my company in 2009, during a recession. As sellers of plant-based medication, my husband and I felt driven to give back to the earth. More than just an exterior commitment.
A downturn in the economy hurts mental and physical health. Our communities suffer, so we knew we had to create a firm where our workforce felt purposeful and connected.
Like many startups, we worked hard to identify our market fit and negotiate product-based business logistics despite fiscal constraints. The support from our team, customers, and stakeholders who shared our aim for a good social impact kept us going in those early days.
In 2020, 88% of publicly traded corporations and 67% of privately owned enterprises have ESG strategies. However, a recession forces enterprises to make tough financial decisions. Companies may be tempted to cut ESG to balance the books, but stakeholder alignment may outweigh the immediate savings.
I’ve found that ESG-focused organizations can weather downturns better. The reason is:
Operating with purpose strengthens stakeholder relations
Our objective to create a good social impact set us apart from our competition in the early days when we were creating vital relationships with consumers, vendors, and partners.
Despite constrained finances, our ESG strategy created brand loyalists and word-of-mouth marketing and led to partnerships we might not have otherwise gotten. For instance, a multinational grocery chain that’s hard to enter approached us before we could meet their need.
Nearly 80% of consumers will quit buying from firms that mistreat people or the environment, and 83% think corporations should actively shape ESG best practices.
We benefited from this huge change toward supporting values-aligned firms during the epidemic when supply chain concerns caused global shortages. Many of our suppliers continued to procure from us despite their constrained supply since they met our ESG standards.
Your earnings and growth may slow during a slump. Motivation beyond profit can provide stakeholders confidence in your company’s long-term strategy and increase buy-in.
Creating sustainable conditions prevents employee burnout
There was “triple bottom line” and “corporate social responsibility.” before ESG. The definition has grown with the term. Companies are realizing ESG includes employee treatment.
Microsoft found that approximately 50% of employees and 53% of supervisors are burned out at work since the pandemic began.
Employee health is important to us as a wellness organization. Our ESG investments include sustainable work conditions processes. This requires building a culture that asks: Is this workload sustainable? Can this project or activity be completed on time? Does this position’s pay match our demands?
We’ve invested in emotional-intelligence training for our personnel to enforce these principles. Workplace experience affects energy, motivation, productivity, and performance. It also impacts their quality of life, which might suffer during a recession.
Finally, a sustainable workplace helps you attract and retain great personnel, a major advantage in any economy.
The days of corporate greenwashing are numbered
Some companies may exaggerate their ESG impact to survive a recession. According to a 2022 Harris Poll, 58% of global CEOs and 68% of US leaders agree their organizations have greenwashed. Exposure to greenwashing is becoming more costly than the return for brands.
Governments and legislators are cracking down on greenwashing, but customers are using social media to call out companies that don’t live up to their ESG ideals.
Businesses can increase their ESG impact fairly and transparently by seeking certifications that reflect their principles. Our wellness business requires products to be vetted, studied, and ethically sourced before indicating they’re beneficial.
B Corp and certified organic certifications provide third-party credibility and customer trust in any business. Companies might produce an annual impact report to demonstrate their ESG initiatives.
Building a socially responsible firm takes time and doesn’t always pay off. A recession may increase the demand for profitability, but it shouldn’t hurt a company’s social influence. Businesses become more scalable and profitable when they adopt ESG value systems and policies, serving all stakeholders better over time.
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Tran Dung/Ates Global
Source: Entrepreneur
