October 17, 2024 Betting on ESG: The Smart Move for Now and the Future

Getting proactive about sustainability initiatives can help companies build a brand reputation while opening business up to new markets.

By Kristin Naragon, Chief Strategy Officer at Akeneo

Money talks, and right now, it’s saying, ‘Go green or go home’.

With half of all U.S. consumers willing to pay a premium for a sustainably sourced product despite an overall trend of price-consciousness, it’s clear that shoppers are putting their cash where their conscience is and encouraging companies to take tangible steps toward a better future.

At the same time, governments and regulators are introducing new policies aimed at holding companies accountable for their environmental, social, and governance (ESG) responsibilities. This one-two punch of consumer pressure and regulatory requirements is pushing businesses to prioritize ESG initiatives, not just as a way to meet expectations but as a core part of their long-term strategies. Those who adapt will thrive, while those who don’t risk being left behind.

A Snapshot of Global Sustainability Regulation and Why It Matters

Governments and international coalitions have made sustainability and corporate accountability a priority. Most of these legislative actions are intended to help countries and regions like the EU reach aggressive targets to reduce and reverse the impacts of climate change within a given timeline. They’re also designed to encourage transparency and give governing authorities a full picture of their industries’ climate impact with the hopes of creating better, greener practices over time.

In the EU, the Corporate Sustainability and Reporting Directive (CSRD) is designed to encourage major companies to provide consistent and accurate reports of their climate impact. The CSRD is a part of the European Green Deal, which looks to make Europe the first climate-neutral continent by 2050. These aggressive goals include at least a 55% reduction in greenhouse gas emissions by 2030 based on 1990 levels.

The European Green Deal also pushes forth initiatives to build a circular economy with the aim of reducing waste and establishing 100% recycled packaging by 2030.

In the US, these initiatives have been admittedly less aggressive, however, the SEC did adopt climate reporting measures in 2024, which mirror the intent of the CSRD in Europe.

Looking ahead, it’s clear that these regulations and sentiments aren’t slowing down anytime soon. While there aren’t heavy fines associated with a lack of transparency at the moment, the future could be much more punitive for corporations that aren’t serious about ESG. What’s more, public perception and brand reputation could be at stake for companies that are noted polluters; businesses in the fast fashion industry have seen a decline in brand trust due to a lack of transparency about their often morally dubious business practices.

Aligning Sustainability Initiatives With Business Strategy

Regardless of what a company’s home country dictates, the fact of the matter is that we live in a global economy. If you’re an American brand hoping to operate within the EU, it’s going to be essential to conform to their standards of sustainability. Conversely, those standards being imposed in the EU are putting European companies in an advantageous position when they expand to American markets; having strong ESG positioning can be a strong distinguishing point for these import brands.

Getting proactive about ESG compliance, setting your standards to the most aggressive regulations, and anticipating future legislative action can not only save on potential fines or regulatory ramifications in the future but can open your organization up to a global market.

Being proactive means starting with an audit. As mentioned earlier, most current regulations are focused on transparency and accountability. But first, you need to be accountable to yourself. Understanding supply chain inefficiencies, having a clear picture of emissions, and uncovering operational shortcomings can provide a baseline for setting goals and internal standards.

Philosophically, the principles of ESG need to be integrated from the top down. If members of the C-suite make clear the importance of sustainability, that mentality will filter through the entire organization, making buy-in on any operational changes that much more holistic.

In execution, the organization should focus on implementing sustainability KPIs and goals and setting carbon footprint standards that match the highest standard of regulatory compliance. Look ahead to potential sustainability legislation like Digital Product Passports — embedded product information that contains everything a consumer or regulator would need to know about the item — to help your organization tackle being prepared for what’s coming down the road rather than scrambling at the last minute.

Data and technology can aid all of these initiatives, leveraging sustainability analytics, AI, and automated reporting tools to track and exceed current and anticipated regulatory standards. Monitoring key KPIs associated with ESG like carbon footprint, sourcing data such as what percentage of materials in a product derives from renewable, ethically produced, or sustainable sources, water usage and more can give the company and consumers insight into the efficacy of these initiatives. Tracking KPIs through product information management systems and other logistics platforms offers a level of transparency to take these projects to the next level.

What Companies Stand to Gain From Proactive Compliance

As is true in most cases, staying proactive when it comes to regulation compliance has both short and long-term benefits. In the short term, brands can improve their reputation and better resonate with consumers. Consumer sentiment surveys have repeatedly revealed that customers will pay more for sustainably produced or packaged products.

In the long term, brands can stay above board with governments and regulators, potentially avoiding fines or penalties. What’s more, by conforming to the most rigorous standards, brands can potentially expand into new markets with stricter requirements.

The question isn’t so much why or how to adopt ESG principles; it’s when. By getting started now and being proactive, brands will be best positioned for a brighter, greener future.

Kristin Naragon is the Chief Strategy Officer at Akeneo, the Product Experience company. She serves on the Board of Directors of the MACH Alliance and has been named a 2023 Honoree of the Changing the Game Awards and a Female Executive of the Year in the 2023 TITAN Women in Business Awards. Before joining Akeneo, Kristin was the global go-to-market strategy leader for Adobe’s marketing automation offering. She brings many years of experience spearheading alliances, sales, strategy, product marketing, and go-to-market capacities for B2B tech companies, from high-growth startups to category-defining major corporations. Kristin earned her MBA from Harvard Business School and an undergraduate degree from Pennsylvania State University. Outside of work, Kristin enjoys fitness and contributing back to the community with her husband and two kids.

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