Founders with mission-driven companies take justifiable pride in creating change in their companies. With a strong mission guiding their business decisions, they make a positive impact on the environment and their communities, create innovative products and services, and give employees an opportunity to do meaningful work.
But recently, Environmental, Social and Governance (ESG) has been gaining traction, both in the press and with investors. At first blush, it may seem similar or even identical to having a mission — after all, both are concerned with creating a positive impact through company actions.
Although they support each other, they serve distinct purposes, and it is important to understand the difference.
ESG vs. mission-driven
Mission-driven refers to a purpose beyond simply maximizing profits. Mission-driven companies are committed to making the world a better place through their products, services and actions, and their business decisions reflect this commitment.
ESG, on the other hand, is a framework for assessing the impact companies have on their employees, customers, communities and the world at large. Broadly, this includes how well the company meets environmental standards; how well it promotes positive social outcomes, both inside and outside the company; and how well the company is run.
Notably, ESG looks beyond the company itself to the environment in which it operates, evaluating how the company is performing in relation to its peers; working conditions throughout its supply chain; the impact of its packaging and other waste; the well-being of employees; the diversity of employees and suppliers; integrity in its business models; the accessibility of its products and services; and the extent and type of corporate activism/lobbying that it engages in.
While a mission drives change through a company’s actions, ESG evaluates those actions within the broader context of its supply chain and community, driving a strategy of ongoing improvements throughout its ecosystem.
Food tech — An industry with a mission
Consider food tech companies that make plant-based meat substitutes. Often, the founders of these companies are passionate about the environment and finding more sustainable ways to feed people. Their mission frequently revolves around providing consumers with healthy, environmentally friendly alternatives to beef, pork and chicken without the extreme water usage, greenhouse gas emissions and methane production associated with the traditional meat industry.
Thanks to values-driven marketing and tasty products, profits and the company’s market share are growing every quarter. With a clear mission and a healthy bottom line, does this company also need to pursue ESG strategies?
A better world — and a better bottom line
Every mission-driven company wants to be sure that it is living up to its objective to do good in the world; those companies also want to attract investors and customers. ESG can help on both counts. By enabling companies to ensure their operations reflect their values and mission, ESG helps them attract aligned investors, customers, partners and employees.
Take the following examples:
- ESG helps to mitigate risks, both systemic and regulatory. In food tech, companies might need to adhere to different regulatory requirements regarding labor, sustainability, packaging, etc., depending on the jurisdictions where they operate or hope to operate in the future. Understanding and adhering to these requirements means more potential business opportunities and less risk of fines or reputational damage.
- ESG helps companies reduce operating costs and increase profits by improving resource efficiency, reducing waste and enhancing innovation. A food tech company might use feedback from its ESG materiality assessment to look for ways to reduce water and raw material usage, for instance, and to find more environmentally sound alternatives to traditional packaging.
- ESG makes companies more appealing to workers. Younger employees, in particular, are taking ESG factors into consideration when applying for jobs. Food tech companies looking to attract and retain talented staff can leverage ESG to demonstrate a commitment to their workers, their community and the environment.
A study published by New York University’s Stern Center for Sustainable Business found that a strong ESG proposition correlates with better performance, higher equity returns and stronger cash flow thanks to increased productivity, fewer regulatory and legal interventions, improved risk management and innovation, and other benefits.
In short, setting a foundation of doing good for your employees, communities and planet, throughout your organization, is good for business.
Where to start
Companies often begin with a materiality assessment to identify and prioritize the ESG factors that could have the biggest impact on their long-term sustainability. By taking steps to showcase its strengths and improve on its weaknesses, companies can make themselves more attractive to investors while supporting their mission more strongly than ever.
Even with clear, strong missions to guide their actions, companies can benefit by investing in ESG — and BPM can help. Reach out to us today to create your organization’s ESG strategy.