There isn't a one size fits all model for brands considering environmental, social and governance (ESG). But there is no doubt ESG is fast becoming a business-critical concern – a sustainable business approach builds trust with consumers, communities and suppliers, attracts and retains employees, and attracts mission-aligned investors.
Strategies for a sustainable future
As consumer expectations on corporate responsibility increase, and the calls for transparency become louder, companies are recognising the need to act on ESG. Professional communications and good intentions are no longer enough. To establish greater responsible and sustainable business practices, businesses should move as quickly as possible to transparently implement their strategies for a sustainable future.
Businesses will be expected to consider:
- Adopting a sustainability policy, conveying internally as well as externally the path forward and tracking their sustainability efforts.
- Working with the Science Based Targets initiative, which provides companies a clearly-defined pathway for reducing their emissions in line with the goals of the Paris Agreement. More than 4,000 businesses and financial institutions are working with the Science Based Targets initiative (SBTi) to reduce their emissions in line with climate science.
- Certifications such as B Corp (already taken up by Richemont-owned Chloé). To date there are over 4500 certified B Corps in 70 countries and 153 industries.
- Eliminating the use of animal products, e.g. by replacing animal fur with faux fur (Gucci’s committed to this from 2018 as part of Gucci Equilibrium).
- Adopting eco-friendly and recycled materials (think Prada’s Re-Nylon Re-Edition bags, or innovations from businesses such as Biophilica, Sheep Inc and PANGAIA).
- Improving compliance relating to regulations in waste management, pollution, and energy efficiency as well as human rights, employee governance and workforce responsibility.
- Their impact not just on climate change and targeting net zero but also commitments to biodiversity and wider nature. In September 2022, McKinsey found that whilst 51% of Fortune Global 500 companies acknowledge biodiversity loss in some way, only 5% have set quantified targets in addition to that acknowledgment.
The B Corp movement is one of the most important of our lifetime, built on the simple fact that business impacts and serves more than just shareholders – it has an equal responsibility to the community and to the planet
Rose Marcario - Former CEO, Patagonia
Brands – be aware!
Greenhushing
By now we’ve probably all heard of ‘greenwashing’ – the process of publishing misleading information about a company’s environmental credentials. But what about ‘greenhushing’? Due to fear of greenwashing and in a bid to avoid regulatory or societal backlash, many companies have decided not to publicise or to under-communicate their sustainability policies and accomplishments. In the same way that ‘greenwashing’ does, ‘greenhushing’ stops consumers from being able to make informed decisions. Transparent, honest communication will be key for brands in 2023 to avoid falling into this trap.
Supply chain transparency is still an issue
Supply chain audits are improving matters, as is the adoption of blockchain (which we covered in more detail here) but the ability of suppliers to adhere to ESG requirements is often compromised by business and consumer expectations of cost and speed. In the luxury industries, suppliers can struggle to comply with ESG requirements where consumer demand for rare or valuable materials is inconsistent with ethical and environmental concerns.
Stepping up and stepping out
Nike and Adidas have both seriously stepped up. Nike has focused on reducing its waste and using renewable energy, while Adidas has created a greener supply chain and pledged that, by 2025, nine out of 10 Adidas articles will be made from sustainable materials.
Walmart, IKEA, and H&M have moved towards more sustainable retailing, largely by leading collaboration across their supply chains to reduce waste, increase resource productivity, and optimise material usage. Walmart has pledged that, by 2040, it will have zeroed out emissions from all its vehicles and transitioned to low-impact refrigerants, IKEA is making strides to using only renewable energy across its value chain, and H&M has pledged to use 100% recycled or sustainable materials by 2030.
The rise of the conscious consumer
One of the key drivers behind the increased focus on sustainability within retail is the rise of the conscious consumer. Whilst the desire for sustainable brands, products and practices is growing amongst all demographics, the strongest force for change is, unsurprisingly, Gen Z, who tend to throw their support behind brands whose values align with their own. Motivating this new generation of consumers is a desire to improve the environment, reduce production waste, and improve animal welfare. As Gen Z continue to enter the workforce and their purchasing power grows, sustainability priorities will undoubtedly increase in importance.
Whilst consumers have been driving this change, a few pioneering forward-thinkers such as Levi’s and Patagonia also deserve praise for their initiatives and for giving conscious consumerism a larger platform. Patagonia, for example, has ensured that 100% of its electricity needs in the US are met with renewable electricity, and its products are made with recycled materials and are Fair Trade certified. Levi’s have innovated to maximise water efficiency via their Water<Less™ process which reduces up to 96% of the water normally used in denim finishing and has in turn saved around 13 billion litres of water as of 2020.
Campaigns such as Patek Philippe’s infamous “You never actually own a Patek Phillipe. You merely look after it for the next generation” highlight that the luxury retail market can appeal to the conscious consumer and is uniquely positioned to do so. Luxury brands can easily lean on pre-owned and rental models owing to the quality, durability and timelessness of their products. Many brands, such as Balenciaga and Alexander McQueen, have already introduced initiatives for customers to return old items to put into the pre-owned market in exchange for gift credit for their next purchase (with the bonus of building brand loyalty).
Wealth to protect wealth
An important brand consideration for the future is the ever-expanding meaning of sustainability. Millennials and Baby Boomers tend to define sustainability with reference to product materials – for example, organic, natural fibres or products made from recycled materials. Gen Z however tend to think bigger and include manufacturing and social awareness in their definition of sustainability – for example, using predictive analytics, testing 3D digital samples prior to production, taking a gender-neutral approach and refining ESG policies. Perhaps the boldest example of environmental corporate leadership so far is Patagonia, who recently announced “Earth is our only shareholder” after creating a structure which allows Patagonia to continue to operate as a for-profit company, with the proceeds going to environmental efforts. Founder, Yvon Chouinard stated, “Instead of ‘going public’, you could say we’re ‘going purpose’... Instead of extracting value from nature and transforming it into wealth for investors, we’ll use the wealth Patagonia creates to protect the source of all wealth.”
Key takeaway: listen to consumers, align with their values, and be transparent about sustainability efforts. And think BIG. Sustainability is not just in the material of the products, but right the way down the supply chain and workforce, and right the way up to the brand’s investment, purpose and mission.
Corporate occupiers and the net-zero transition
One of the country’s main sources of carbon emissions comes from its buildings – commercial real estate is a key source of CO2 emissions, both in terms of the construction of new buildings and the energy demand from existing buildings, which means that the sector must respond to these challenges. As businesses continue to expand, it is easy for that carbon footprint to grow too – but it doesn’t have to be this way.
Buildings are a major contributor to climate change and in the UK, they are responsible for 23% of all carbon emissions – with 30% of these emissions coming from non-domestic buildings
HSBC
Decarbonising buildings – challenges
Despite the long-term cost advantages of decarbonising buildings, owners of commercial buildings may lack incentives to invest in energy-efficiency improvements or new equipment. In some cases, incentives are split between owners and tenants: owners would pay the up-front capital costs, but tenants may enjoy the savings on energy bills and so owners may need further stimuli to push them to invest. A multitude of varying building standards and scattered ownership is proving challenging, too.
Decarbonising buildings – opportunities
The net-zero transition will create opportunities for companies that support the decarbonisation of existing building stock. Manufacturers and installers of low-emissions and efficiency-enhancing building materials and systems, as well as the services ecosystem that manages retrofit projects and maintains these systems, will experience significant new demand as the retrofit cycle accelerates. There will also be growth in demand for digital systems used to increase the efficiency of buildings and track their energy usage and greenhouse gas emissions. To keep pace with increasingly accelerated retrofit programmes, builders and building owners are likely to require more engineering, technology, and performance-management services.
Net-zero builders can create value by investing in next-generation technologies, replacing equipment with low-emissions models, and improving energy efficiency
McKinsey
A case study: Lewis Silkin and the Arbor building
Lewis Silkin (and The Collective) will soon be moving its London office to the Arbor building, part of the Bankside Yards development near Blackfriars. It is a chance for the firm to truly limit this footprint and control its own destiny when it comes to sustainability. The building utilises the very latest in sustainable technologies. A shared energy network across the 5 ½ acre site, using efficient air source heat pumps and incredibly smart energy sharing tech that reduces consumption and ensures minimal wastage – it should amount to a 30% reduction in energy usage compared to standard buildings. Arbor should produce around 45% less CO2 to operate than as stipulated by Part L of the current Buildings Regulations on energy performance. Add in triple glazing and smart blinds, a green roof to encourage wildlife and biodiversity and a healthy fresh air supply provided by a state-of-the-art filtration system, the building should allow us to practice what we preach when it comes to sustainability going forwards (and help keep our people healthy). We will also do our bit within the building to promote sustainability: reducing waste, paperless working and using ‘greener’ suppliers.
A key part of being successful with ESG initiatives is to pay attention to the granular detail. Each decision can have a positive effect. Of course, the bigger a business becomes, the more buildings it is likely to occupy – whether a retailer taking shop premises, a new hotel being built, or the HQ from which to run them – the harder this sustainability can be to manage. That’s why it’s vital to partner with companies that promote responsible ESG targets throughout all facets of a business, whether real estate, supply chain or internal policies
Patrick Brown - Real Estate, Lewis Silkin
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