ESG (Environmental, Social and Governance) has become the new CSR (Corporate Social Responsibility). What is the true incentive for companies to adopt these measures, then?

On the cover page, the purpose of ESG is to encourage companies to slow down the rate of global warming. This can be achieved through lesser emissions, energy-saving measures, and reducing the use of single-use plastics. Many investors are now looking at a company’s ability to ‘put their money where their mouth is’ before investing in them.

However, when we take a deeper look at ESG, it actually benefits the company far more than the environment. More employees, especially millennials and Gen Z, are actually looking at a company’s ESG score before deciding to work with them. 

This creates an incentive for greenwashing - a marketing hype in which companies overstate their ESG efforts. Greenwashing can be disguised in many ways:

1. An organisation stating that it’s green-conscious when it has no concrete plans to go green

2. More budget is spent on marketing its green initiatives rather than actually carrying them out

3. The end product of its green initiative is actually more damaging to the environment (e.g recycling companies are one of the largest contributors to pollution)

Other times, companies may also use cost-cutting as a marketing strategy. KFC implemented this by removing plastic straws, reducing 17.8 tonnes of plastic and about $220k in production costs every year. Locally, certain supermarkets have also started charging for grocery bags, with the claims that it is to encourage reduced use of plastic.

So why not decline to work with suppliers who incorporate single-use plastics into their products?

The unfortunate answer is that companies are not incentivised to change unless it benefits them. The guise of sustainability is the perfect tool to generate another revenue stream that consumers have no choice but to support.

Of course, there are companies that do exist to promote environmental sustainability, most of them NGOs that get funding from the government. However, we cannot properly reverse global warming without forcing large companies to cut down on their carbon emissions.

So if you’re thinking of working at a new company, it might be good to make sure that their ESG score is reflective of what they’re actually doing.