Consumer Demand for ESG

Companies are continuing to see increased pressure on Environmental, Social and Governance (ESG) issues from customers, employees and investors. While this will affect all industries, the progress of Business-to-Consumer organizations have the most visibility to these stakeholder groups. Roughly 90% of consumers expect companies to make improvements related to these matters, and they are more willing to give their business to those that do.

While consumers have long valued the elements of ESG, this has accelerated since the beginning of the pandemic as customer behavior has undergone a fundamental change. Individuals are now more aware of extreme weather events, social unrest and economic pressures on society. Consumers also have access to more information than ever before to inform their purchasing decisions. While price continues to be the top consideration, it is closely followed by the customer’s feelings about the company selling the product or service. Customers today are more attentive to product reviews and reputation. 

The growth of e-commerce has created a new generation of retail entrants, many of which center their brands around ESG. Out-of-stock items from supply chain disruptions have also led customers to become more aware of alternatives as they are forced to research substitutions.

Consumers are increasingly aware of the impact they have in selecting brands focused on ESG, while corporations are increasing public awareness of their efforts. Google, Salesforce and numerous auto manufacturers aired high profile ESG ads during Super Bowl LVI. Companies are becoming more public with their inclusion practices and net-zero emissions pledges. Organizations participating in e-commerce are also promoting their initiatives to reduce both the environmental impact of shipping materials and the carbon costs of transporting products directly to customers. The pressure is also extending to entities within their supply chain. 

Internal pressure is also strong from employees who want to feel that they contribute to an organization making a positive difference in the world. This has become critical to attracting talent in the current hiring environment.

It seems that history is repeating itself. In the early 20th century, The Securities and Exchange Act of 1934 gave the U.S. Securities and Exchange Commission (SEC) authorization to require public companies to regularly submit audited financials. However, prior to this legislation, roughly 80% of companies on the New York Stock Exchange were already voluntarily disclosing audited financial statements to satisfy the public. 

Today, while the SEC is currently working on and expected to provide their ESG reporting requirements in the coming months, many companies have already started disclosing this information. As a result of consumer and investor expectations, roughly 95% of the S&P 500 voluntarily disclosed ESG information last year, and over half of those received some form of third-party verification or assurance. ESG focused investment has also continued to grow and reached nearly $70 billion in new money invested in ESG funds during 2021.

Privately held organizations have also started to make public statements about their initiatives, post ESG information to their websites and enjoy positive press coverage on their progress. 

ESG presents significant challenges; however, as organizations navigate this competitive Business-to-Consumer environment, they should place these initiatives alongside their other priorities. ESG is a top consideration for most customers, and they’re willing to vote with their wallet for organizations they want to see succeed. 

Schneider Downs provides assurance and advisory services for retail and business-to-consumer organizations. For more information concerning ESG matters and their impact to your organization, please visit the Schneider Downs Our Thoughts On blog or email us at [email protected].