In 1970, Milton Friedman published an op-ed in the New York Times in which he described what he called “The Friedman Doctrine.” The gist of his argument was that corporate executives have a responsibility to company shareholders to “make as much money as possible while conforming to the basic rules of the society.”
He felt that a corporation’s responsibilities began and ended with making profits. For a long time, many business leaders agreed with him. In recent years though, we’ve seen a shift in how corporations consider their role in society. There’s a growing pressure—from customers, employees, and the public at large—to start treating sustainability and ESG as being as important as profits.
For anyone wondering what that really means, we have a basic primer on what sustainability and ESG are.
What is Sustainability?
Back in 1987,the United Nations’ (UN) Brundtland Commission defined sustainability as “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” That means balancing goals for profitability with the long-term needs of people and the planet.
For a corporation, a useful way to think about sustainability is to expand your idea of who counts as a stakeholder in your business. You have your shareholders, the audience Friedman was most concerned with. Yet you also have the customers whose purchases fuel your profits. You have employees, whose work your business depends on. And you have suppliers and partners who provide you with the raw materials and services your business needs to thrive.
All of those people have a stake in your business, and the business has a stake in them. When you realize that their needs and well-being are just as important to your business as profits, you approach them with the goal of a positive-sum relationship.
A positive-sum relationship is basically the opposite of a zero-sum relationship. Instead of thinking someone else has to lose for you to win, you recognize that the best path forward is one you both benefit from. Happy customers keep coming back. Satisfied employees do better work. And when your vendors and suppliers have a good relationship with you, they continue that relationship over the long term.
All of that can add up to a business that produces better results over time, rather than burning through relationships and resources to make bigger short-term profits.
What is ESG?
ESG stands for environmental, social, and corporate governance, and closely relates to the concept of corporate sustainability. When a business commits to ESG, it means taking an active approach to incorporating concerns about climate change, social disparities, and the erosion of public trust into your business strategies.
In practice, that can mean setting goals around ESG metrics, such as your carbon footprint, greenhouse gas emissions, and racial and gender pay equity in your company. It can mean holding your own warehouses and offices, and those of your vendors, to a high standard in terms of labor conditions and environmental impact.
In general, it means factoring considerations of environmental and social concerns into your business decisions, and giving them comparable weight to profitability. This “people, planet, profit” principle is what some refer to as the “triple bottom line.”
Sustainability and ESG Can Support Profits
The old ways of thinking pitted socially responsible decisions against profits. Many business leaders assumed that making the sustainable choice meant spending more or making less (or both). If that was ever true, it’s not now.
Customers increasingly care about choosing brands that prioritize ESG. Over 75% say they’re more likely to buy from a brand that stands up for environmental, social, and governance issues.
It also impacts your ability to attract talent. Over 80% of people in that same survey said they prefer to work for businesses committed to environmental, social, and governance.
At Neo Group, we see the value of ESG and sustainability to business success every day. Companies come to us asking which vendors are committed to ESG, and whether their efforts are legitimate, instead of just empty claims.
Companies, customers, and employees are all factoring this into their decisions about which brands to work with and buy from. At this point, not treating ESG and sustainability as priorities may well cost you more than investing in it does. Don’t think about sustainability as something that hurts the bottom line; start thinking in terms of the triple bottom line.
We can help. Do you want to assess the ESG and sustainable practices and health of your third parties? We have the data and expertise to help you do that.
