Making sense of the ESG alphabet soup

This post is sponsored by Ipsos.

ESG is often referred to as the alphabet soup because of the complex and acronym-heavy reporting and disclosure landscape being formalised around the world. It can also reflect the confusion many businesses feel when they set out to develop or enhance their ESG or sustainability strategy.

Ipsos research, both new and spanning decades, helps make sense of the ESG alphabet soup and can provide practical steps for businesses to take the right actions for the benefit of people and the planet, and to drive long-term prosperity for all.

The issues behind ESG are not new

While the formalisation of ESG is new – and moving rapidly in some markets – the issues that sit behind ESG are not new and have mattered to the public, consumers, and other stakeholders for decades.

Data from Ipsos’ “What Worries the World” series reveals the issues that rise to the top in terms of global concerns are very much related to ESG.

• Inflation and the cost of living: Linked directly to governance issues around consumer pricing decisions and the management of corporate profit.
• Poverty and social inequality: Linked to the S – social – in ESG with business supporting social causes and helping to address inequality.
• Financial corruption: Linked to governance issues around strict supply chain management and the avoidance of corruption and bribery.
• Unemployment: Perhaps one of the most foundational expectations of business – to be a good employer and provide secure long-term employment – again linked to the S.
• Climate change: Ranks at #7 globally and #6 in APAC and is of course a key component of the E in ESG.

This data can provide some comfort to those businesses navigating ESG and feeling as if they are being asked to make sense of a whole new set of expectations.

Expectations of business are new

While the issues that sit behind ESG are not new, the complexity of ESG is compounded by the broader context the world finds itself in: the polycrisis. The term polycrisis refers to the collective impact of the many crises that are converging on the world now.

These are things such as new and escalating global conflicts, continued social unrest, uncertainty regarding the effects of globalisation, the ongoing impact and mitigation of climate change, inflation, and the cost of living. The list goes on.

Amidst this environment, a concerning 74% of global citizens feel their government and public services will do too little to help people in the years ahead, according to Ipsos’ 2023 Global Trends Report. And while these crises will not disappear any time soon, they, and this perceived diminished capacity of government to help us navigate them, are feeding into and accelerating changing expectations of business.

Increasingly, the public is looking to business to fill the gap left by government and other institutions, and we find ourselves in a new era of capitalism that not only holds business accountable for the toll it takes on people and the planet, but also sees a clear societal role for business.

This shift in expectations of business can be summarised as what drives trust in business; and Ipsos’ work in this space identifies three components of trust:

Competence: The ability to provide good products and/or services at a fair price – the foundations of any business relationship.

Commitment: The commitment to do things better, and ultimately, do no harm in the process of providing those goods and/or services.

Mutuality: The expectation, among some, for a business to show that it shares the interests and values of stakeholders and is prepared to stand up for them when times get tough.

Delivering against these three elements of trust – and meeting these new expectations – does require a different way of thinking, behaving and communicating for some businesses.

ESG expectations vary by sector, but are aligned with core business

One of the greatest challenges for business in relation to ESG is prioritising and focusing efforts. Action is often based around what businesses think the public, consumers or other stakeholders expect of them. Based on this, many businesses take and speak about action in the environmental space because they think that’s what is expected.

However, Ipsos data from across APAC reveals that improving society is the top priority for multinational companies according to consumers. Yet so much of the discussion about ESG, and indeed sustainability, is focused on the environment.

Ipsos data also reveals that the weighting of E, S and G changes considerably by industry.

Starting with automotive, consumers across APAC generally want to see action centred around safety and emissions as well as the affordability and accessibility of new forms of transport. Expectations right across the E, S and G.

For the food and beverage sector, safety is the top priority followed by a specific focus on packaging and then three social elements: consumer health, employee health and safety, and job creation. Again, expectations span the E, S and G, but there is quite a strong focus on social issues.

Financial services looks different with a heavy focus on governance, including combating crime and corruption, managing executive remuneration, transparency around dealings with government, and paying a fair amount of tax.

This variation across sectors can be seen as reassuring in that ESG expectations are closely aligned with core business and it is not a case of having to take drastic action to meet ESG expectations.

Further, this variation in expectations across sectors will also be seen among particular companies within each sector, highlighting the importance of having a deep understanding of stakeholder expectations before developing ESG strategies and initiatives.

ESG action must be authentic, credible, and effective

The corporate landscape is littered with companies that haven’t used stakeholder expectations to inform ESG strategy and they have found themselves in the uncomfortable position of getting it wrong. Ipsos uses its simple and impactful ACE framework to help businesses develop ESG and communications strategy based on actions that are authentic, credible, and effective:

1) Authentic
- The action leverages relevant – and often unique – business know-how in addressing the ESG issue.
- The action is aligned with company mission and purpose.
- Taking action that is aligned with the business and is a win-win reduces the risk of being accused of greenwashing or being “woke”.

2) Credible
- The action is informed by external realities – it addresses a real ESG need.
- The action is supported by partnerships where appropriate to deliver more meaningful impact in a credible way.
- Companies can’t always assume they are a credible actor in the ESG space and sometimes need to partner with NGOs or those in the scientific space to borrow equity and increase credibility.

3) Effective
- The action has a real world impact on the chosen ESG issue.
- The action generates goodwill amongst stakeholders – employees, consumers, the public, investors, etc.
- There is business impact, that is, more efficient operations, more sustainable performance, etc.
- The impact of the company’s action is measurable and can be communicated over time.

Following these steps gets businesses much closer to the sweet spot of ESG where effective strategy and action can generate business value while having a positive impact on people and planet.

About Ipsos and our ESG practice

We give businesses, governments, and public bodies the confidence they need to take the right actions for the benefit of people and the planet to drive long-term prosperity for all.

Our world-leading experts produce primary data, research, and insights to fuel a healthy public debate and create value by providing a true understanding of society, markets, and people.

Internally, we foster a culture which encourages diversity of thought and opinion where individuals can truly belong and have the freedom to produce work that drives impact.

Please reach out if you would like to discuss how we can help you make sense of the ESG alphabet soup.

For more information, please visit https://www.ipsos.com/en/ipsos-and-esg

The writer is Sally Braidwood, head of corporate reputation and ESG Research, Ipsos in Australia and New Zealand.