The (Hidden) Marketing Value of ESG

It is easy to dismiss ESG as a marketing ploy.

Whenever new trends emerge, our first reaction is defensive. That is why deriding ESG - with its focus on environmental, societal and governance factors - as a fancy label with little worth comes naturally. Labels, such as "ESG" or "sustainable investing" in general tend to exist more for show than for anything truly constructive.

But ESG as a label has done quite well, especially in the financial world, with $152 billion having been poured into funds and other financial products which their promoters have marketed as being ESG-focused (in 2020 alone).

Beyond the "new shiny object" value of ESG (and yes, virtue-signalling is very much a thing) there is actually another side to the issue.

When companies and their investors start to become conscious of ESG topics, they also begin to think more long-term. Their horizons broaden, their perspectives widen and their approach to business becomes more like a real relationship than a one-night stand.

At its core, ESG is about playing the long game.

Sure, plenty of ESG investors jump on the bandwagon with the clear and direct goal of earning a quick profit. Neither Wall Street nor Main Street will ever be totally devoid of that tendency. Human nature does not change so easily.

But as time has shown, smart people think beyond today, tomorrow, or even next year.

They consider all the facts.

The hidden power of ESG marketing

Why is this important for marketing in particular?

Time and again, history has proven that long-term thinking ends up being the most successful. Netflix's CEO Reed Hastings famously booted a large portion of his executive team out of a team meeting because he knew they would not embrace his long-term vision of moving from DVDs to streaming.

Look where Netflix is today.

By openly embracing ESG - and using the label - it is possible to signal, subtly or not so subtly, that a company is building for the long haul. This also signals its focus on value - and unlike short-term profits, ESG has a special value to offer.

ESG funds and the firms they invest in become (over time) "the safer bet" because they have done the homework and gone to the trouble to think about the future rationally and seriously.

Dropping the high-growth burden

Much has been made of the rapid rise of growth stocks in recent years. Apple, Tesla, Amazon and others continue to defy expectations and deliver outsized returns - and also incur skepticism from traditional value investors.

The question is: how long can such high-flying companies continue to out-perform their peers?

The implicit indictment in such a question is based on the belief that growth stocks are not sustainable; sooner or later, they must run head-long into the hard wall of reality.

But what if such high-flyers embrace ESG - and not just as a fancy label? Openly acknowledging that "longevity" is a key to success can make high-growth companies more attractive and position themselves in the market for the long haul.

The road less taken

It will not be easy for companies to fully embrace ESG - even if they see the need for it. Most of the time, adhering to new standards and new regulation involves greater cost and more administrative burden.

But looking beyond the complexities to see the benefits - even short-term - of implementing ESG standards and strategies can ultimately be beneficial.

If executives and company board members realize that a long-term focus can actually make them more attractive to investors and that an ESG focus helps support that narrative, then the label can actually turn out to be more than just a fancy sticker.

And ordinary investors may drive them to do so - as a survey from Natixis shows: 68% of savers want their investments to take ESG into consideration.

Many will choose not to, of course. The road to long-term value is paved with selfish intentions. And along the way, it may be tempting to take advantage of ESG trends for short-term gains.

But the visionary thinkers (almost) always win out in the end. That is the true (marketing) value of ESG.

Companies ignore it at their own peril.