Look around you. Evidence that businesses are responding to heightened interest in environmental, social and governance (ESG) issues is everywhere. Whether that’s eco-packaging, diversity commitments or the expanding number of companies targeting net-zero emissions. Is it enough? Is it too much all at once to be credible? No. Consumers want to see business play an even bigger role in accelerating progress on ESG concerns. Indeed, more than three quarters say they’ll reward companies for doing so, according to our 2021 Consumer Intelligence Series survey on ESG. We polled consumers, employees and executives in March and April 2021 and found that consumers and employees want business to proactively shape ESG best practices, not just react and adjust.
We designed this survey to give you and your company a finer understanding of evolving consumer expectations around ESG. Our findings indicate that consumers have different perceptions than business leaders about where ESG investments are flowing, and they’re looking for information about ESG in different places than where businesses are currently reporting. For additional insight, we segmented executives by their responses and found that only 28% of executives stood out as “ESG Trendsetters.” These executives are advocates for businesses advancing ESG agendas with a strong consumer-focused mindset, and they’re closing the gap with consumer expectations. These are our top findings.
Consumers and employees want businesses to invest in making sustainable improvements to the environment and society, not just comply with regulation, and they’re prepared to reward (or penalize) brands accordingly. Overwhelming majorities of both consumers and employees said they’re more likely to buy from or work for companies that share their values across the various elements of ESG. While consumers have long said that they value sustainability, the COVID-19 crisis perceptibly shifted consumer behavior and enlarged the pool of conscientious consumers willing to pay more for healthier, safer, more environmentally and socially conscious products and brands.
By the same token, businesses that are perceived to be falling short risk losing consumers right when post-pandemic economic recovery is taking shape. Seventy-six percent of consumers told us they will discontinue relations with companies that treat employees, communities and the environment poorly. For their part, companies are highly attuned to the high standards consumers are holding them to. We asked executives who their most important stakeholders are and consumers came out ahead of others (such as employees, investors, regulators and media). ESG Trendsetters consider consumers an even higher priority (64% versus 53% on average).
Climate change is high on everyone’s ESG investment wishlist, with consumers and employees standing firmly behind the corporate race to net zero. For companies, only privacy and data security is a bigger investment priority. Our findings show that access to healthcare, safety in the workplace and compliance with regulations also rank as high priorities for consumers and companies.
There is, however, a glaring disconnect between consumer and management perception. Many more executives than consumers believe that companies are increasing investments across ESG issues. Consumers make it clear that corporate actions matter more to them than words. Where they see progress, they give companies credit. Almost three-quarters (74%) said companies care much more about the environment than they did ten years ago. But almost as many (73%) told us they feel let down by what they view as slow progress on diversity and inclusion (D&I). In fact, 64% of the business leaders themselves expressed disappointment that D&I commitments are not yet showing desired results.
What would it take to move the needle on ESG? Executives say their ESG agendas are motivated by the prospect of a better future for people and the planet, but consumers remain skeptical. They believe that pressure from them, brand image and regulatory standards are driving companies toward ESG action. More than half of consumers (57%) say that companies should be doing more to advance environmental issues (e.g., climate change and water stress), 48% want companies to show more progress on social issues (e.g., D&I and data security and privacy) and 54% expect more from companies on governance issues (e.g., complying with laws and regulation and addressing widening pay gap).
There’s more than one way to gain ground on ESG. Consumers believe it’s financial incentives tied to social good — more than anything else. Executives say that having corporate social responsibility roles report directly to the CEO is a way to influence greater ESG progress, while employees think progress comes from integrating ESG into the corporate strategy.
Investors poured $51 billion dollars into ESG-impact funds in 2020, more than doubling such investments within a year. Investors increasingly believe businesses can do well by doing good. The long-term advantages of advancing ESG are apparent to companies too, with 92% of business respondents agreeing that companies with commitments to ESG policies will outlast competitors without.
The near-term remains the challenge. Balancing investment needs for growth with investment needs for ESG goals is the top challenge, executives say. The second greatest barrier? Thirty-seven percent cited lack of reporting standards and regulatory complexity as a bigger obstacle to advancing ESG issues than a lack of attention by senior management, time or resources. Many are not sure about which reporting standard to follow, or how far they should go beyond standards to meet higher consumer and employee expectations. It is clear that the pendulum is swinging toward more regulatory action on ESG disclosures, and businesses can take proactive steps now to be better positioned for success as data and reporting get more regulated and standardized.
This article originally appeared at https://www.pwc.com/us/en/services/consulting/library/consumer-intelligence-series/consumer-and-employee-esg-expectations.html and is republished with permission.