Why ESG companies are better equipped to weather a recession

I co-founded my company in 2009, at the end of a recession. My partner and I sold products rooted in plant-based medicine, so we felt compelled to make sure our company gave back to the environment it benefited from. But it wasn’t just an external commitment.

When there is an economic downturn, there is also a downturn in mental and physical health. Much is suffering in the communities we live in, and we recognized early on the importance of establishing a company where our team feels a sense of purpose and belonging.

Like many startups, we had to work tirelessly amid economic constraints to find our market fit and navigate the logistics of a product-based company. What fueled our energy and motivation during those early days of uncertainty was the affirmation we received from our team, customers and key stakeholders who understood our vision to make a positive social impact.

As of 2020, 88% of publicly traded companies and 67% of private companies had ESG initiatives in situ. However, during an economic downturn, companies are forced to make tough financial decisions. Scaling back on ESG can be tempting in an effort to balance the books, but companies that do may find that the temporary savings are much offset by the loss of stakeholder alignment.

Experience has taught me that ESG-focused companies are often better equipped to weather the storms of a recession. This is why:

Related: Why ESG-Aware Companies Are Resilient Companies

Goal-oriented entrepreneurship strengthens relationships with stakeholders

In those early days, when we were just building important relationships with our customers, vendors and partners, it was our mission – to make a positive social impact – that set us apart from our competitors.

Not only did our ESG vision get brand loyalists and word of mouth for us in a time when budgets were tight, it opened doors to partnerships that we might not have closed otherwise. For example, a global supermarket chain that has historically struggled to come in approached us before we were even ready to meet the demand it needed to be on their shelves.

Almost 80% of consumers say they will stop buying from companies that mistreat the environment or people, and 83% believe companies should actively shape ESG best practices.

This major shift to supporting value-aligned businesses has also helped us during the pandemic, when supply chain issues caused global shortages. Many of our suppliers chose to continue to source from us, even with the limited inventory they had, because they met our ESG standards.

If there is a recession, your profits and growth may come to a temporary halt. A motivation beyond profit can create a sense of stability and certainty in your company’s long-term vision, attracting more stakeholders.

Related: 5 Big Mistakes Companies Are Making When Addressing ESG

Creating sustainable conditions prevents burnout among employees

Before ESG there was “triple lower limit” and “Corporate Social ResponsibilityJust as the name has evolved, so has the definition. More and more companies recognize that ESG also encompasses the treatment of employees.

Workplace burnout has risen steadily since the outbreak of the pandemic, with nearly 50% of employees and 53% of managers report experiencing burnout at work, according to a new study from Microsoft.

As a wellness company, the health of our employees is of paramount importance. For us, investing in ESG also means creating processes to make working conditions sustainable. This includes creating a culture that asks important questions: Is this a sustainable workload? Is the timeliness of this project or task realistic? Is the compensation for this position fair for what we are asking for it?

One of the ways we have tried to ensure compliance with this policy is by investing in emotional intelligence training for our employees. The experience employees have at work is strongly linked to their energy, motivation, productivity and performance. It also has a major impact on their overall quality of life, which can be stretched thin during a recession.

Finally, by creating a sustainable environment for employees, you are more likely to attract and retain top talent – an important advantage in any economy.

Related: 3 steps for a positive impact on the environment, society and governance (ESG).

The days of corporate greenwashing are numbered

In an effort to stay afloat during a recession, some companies may be vocal about their ESG impact in ways that may mislead the public. This concept of greenwashing is very common 2022 Harris Survey found that 58% of global leaders and 68% of leaders in the United States admit their companies have exaggerated or green-washed their sustainability at times. But the risk of damaging a brand’s reputation through exposed greenwashing quickly outweighs the reward.

It is not just governments and policymakers who are getting involved prevent greenwashingbut consumers are also doing their own research — armed with social media, they’re calling out organizations that don’t live up to the ESG values ​​they embrace.

One of the best ways for companies to increase their ESG impact in a fair and transparent way is to look for certifications that are representative of the values ​​they embody. For example, in our wellness industry, it is critical that a product is tested, researched, and ethically sourced if we suggest it is therapeutic for someone.

Regardless of your industry, there are certifications such as B Corp or certified organic that provide third-party credibility and consumer assurance. Companies can also publish a yearbook impact report that provides a transparent view of their ESG efforts.

Building a socially responsible business is a long road — the returns don’t always come with monetary gains upfront. While the need for profitability may be greater during a recession, this should not be at the expense of a company’s social impact. When companies invest in ESG value systems and policies, they create more scalable and successful organizations that better serve all stakeholders in the long run.