Cutting ESG & Sustainability to Reduce Costs in a Recession
ESG and sustainability matter because they contribute to the long-term viability, resilience, and success of businesses while addressing urgent global challenges such as climate change. What’s more, stakeholders increasingly want to work for, buy from, and invest in, companies that adhere to the ethical performance indicators contained within this framework. By integrating ESG considerations into their decision-making, companies can navigate risks, seize opportunities, and create value in a rapidly changing world.
However, commitment to these principles is bound to be tested by the current economic outlook. With the threat of a recession looming, many CEOs are considering pausing ESG and sustainability programmes in order to cut costs, despite the positive correlation between ethics and profitability.
This type of short-term thinking is a mistake for several reasons:
People increasingly want meaningful jobs, and recruiting and retaining skilled staff remains challenging, even in a recession. Cutting back on ESG and sustainability will only exacerbate this problem as workers choose purpose-driven employers who are committed to ethical practices that benefit society and protect the environment.
Just like workers, customers are also drawn to ethical brands, and anything that compromises corporate reputation will likely push people into the arms of competitors. By maintaining ESG and sustainability efforts, businesses can demonstrate that they care about the environment and support community initiatives which helps encourage customer loyalty.
Investors are increasingly concerned with risk mitigation. If businesses cut back on ESG and sustainability, then they run the risk of incurring major reputational damage and harming profitability. If social risks aren’t being monitored at board level, chances are investors will take flight and move their money elsewhere.
Reputation and Corporate Purpose
Trust in companies is fragile at the best of times and continues to wane, which makes the social pillar of ESG particularly important. In order to maintain good relationships with stakeholders, companies need to carry on supporting nonprofits during times of economic need. The recession will likely see more people struggling with basic needs such as food and shelter, so it’s counterproductive to cut back on employee volunteerism and product donations just when they’re needed the most.
Commitment to Social Purpose
Society faces the same pressing challenges, regardless of how the economy is performing. Meeting these challenges head on to make the world a better place requires continued investment, energy, and focus from companies who must remain committed to social purpose to enact real change.
If you work in ESG and sustainability, or you’re looking to get into this field, it’s understandable to have concerns about companies cutting costs during the recession. However, meaningful ESG and sustainability strategies require commitment to long term vision and goals. Economic uncertainty is bound to cause doubts around investment in these programmes, but it would be a mistake to scale back in favour of short-term cost cutting. Some businesses will undoubtedly fall into this trap, but many more will consider the implications for their reputation and profitability, emerging from the recession in much better shape.