Understanding the 'New Social Contract' for Brands

Brands in 2021 are likely to experience greater scrutiny for their impact on the environment, community, working conditions and much more. These considerations are commonly referred to as ‘ESG’ in the finance sector, standing for ‘Environment’ ‘Social’ and ‘Governance’ responsibilities. The term has come into increased use over the last decade, replacing the less-encompassing ‘corporate responsibility’ phrase.

As Audrey Choi explained on the Money Maze Podcast, sustainability, brand and reputation have never been closer. Reflecting the heightened scrutiny of 24 hour news and endless social media feeds, consumers are more sceptical than ever. In fact, more than 81% of millennial consumers expect brands to make commitments to being good corporate citizens.

For corporates and start-ups, the heightened scrutiny also means opportunity. Brands that demonstrate a genuine commitment to supporting the environment and their communities can stand out, translating in stronger future revenues, thanks to good-PR related market share gains, and reduced operating costs (due to increased operating efficiency and reduced energy bills).

Sustainability as a core mission has been a valuable asset for brands in 2020. One of the star performers of the NASDAQ this year has been Beyond Meat. Despite sales growing only 2% in 2020, its share price increased by 73% from May to August 2020. This is more impressive given the COVID-19 pandemic, which has decimated the hospitality industry on both sides of the Atlantic.

Yet it’s a fine line between being seen to support the environment, and using sustainability as an excuse to cut costs. Apple came under scrutiny this year for its announcement that it won’t ship new iPhones with chargers included. Some argued this was just a greedy cash grab, forcing users to spend more on accessories. It’s also suggested that this move was designed to outmanoeuvre EU efforts legislate for manufactures to use one universal charging port, in order to reduce electronic waste (USB-C is seen as the primary candidate for this). Discarded chargers are currently responsible for 51,000 metric tons of waste in the EU alone.

And for brands, it’s not just about cutting costs and good PR. If they fail to consider the growing environmental imperatives, start-ups will jump at the opportunity. For instance, Toronto-based ride-sharing platform Facedrive saw revenues grow from $13 million in 2018 to $600 million in 2019, in part due to it’s ‘people-and-planet first’ philosophy, putting the environment at the heart of its marketing and operating model. This has further challenged the dominance of Uber in the sector, whose operation has suffered long-term share price stagnation, local legislative issues, and ever-increasing competition.

Further along the business cycle, Tesla’s huge market share gains on auto manufacturers in Europe and the US is demonstrative of the power of sustainability in branding.

On the other hand, brands that ignore their environmental and social responsibilities can see criticism translating into significant revenue declines. COVID-19 is accelerating the importance of considering social responsibilities. The crisis has meant a greater appreciation for the ‘low-skilled’ economy, especially in the fields of healthcare support, food retail and logistics. In the UK for example, two-thirds of people say they now value low-skilled - but essential - workers more than they did before the start of the pandemic.

Getting it wrong on ESG can mean more damage for already crisis-hit firms. In New York, Shake Shack had to return a $10 million small business loan after facing much criticism for utilising a scheme aimed at independent restaurants.

And whilst Amazon continues to dominate e-commerce, criticism of its warehouse working conditions has inevitably damaged its brand, an impact which will likely have negative implications as challenger brands catch-up on the product side.

It can therefore be suggested that environmental sustainability in both marketing and operations is a clear opportunity for firms to save costs and boost market share. Little surprise therefore that most major brands you’ve heard of will have detailed and dedicated sections on their website explaining their environmental commitments. Whilst ‘greenwashing’ is now something the consumer is mindful of, the cost-savings make sustainability a smart business reality for firms anyway.

COVID-19 has also demonstrated the importance of valuing workers and local communities, pushing the ‘social’ element of ESG up the agenda. Assuming a swift economic recovery, and given the Biden’s election win in the US, it’s likely that social considerations will play even more of a role in both corporate and start-up practices.

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