ESG’s Impact on Professional Services

by | Growth Strategy, Marketing Strategy

ESG impact on pro services

Environment, Social, and Governance (ESG) “marketing” is the season’s latest trend.  If you haven’t noticed, it might be a good time to start paying strategic attention because it will be impacting your firm in a significant way shortly.

Why is ESG important to Professional Services?

One might not think that protecting the environment, looking out for employee well-being, and ensuring financial transparency would be rife with complexity and strategic choices. While there are potential rewards associated with ESG, there are also serious risks because these attributes have become deeply politicized and polarizing. How firms use ESG to position their businesses is of strategic importance to a firm’s brand, demand generation, client relationships, recruiting, and culture.

The concept of ESG has been gaining momentum for some time. Today, racial tensions, political division, and a once-in-a-lifetime global shutdown have led to a serious reexamination of life and business practices. Big banks, accounting firms, and business leaders are working to “reset” how company’s conduct and measure business performance.

READ: Demystifying ESG: Its History & Current Status

The Risks and Rewards of ESG

Like so many other opportunities the risks and rewards reflect opposite sides of the same coin. It’s important to understand what’s at stake. Here are a few of the major risks and opportunities of this mega-trend.

Ensuring access to capital

Wall Street is using ESG criteria to allocate capital. Whether you’re a private or a public company, you need capital and the route to it is going to go through ESG. There’s going to be a new reality correlating your ESG “score” and your access to capital.

According to Forbes, “The Davos Manifesto highlighted a set of 22 quantitative core ESG metrics and then added a more advanced phase two aspirational set of 34 metrics. The expanded metrics are less established and revolve around a “wider value chain.” The metrics align with the UN’s 2030 Agenda for sustainable development and are centered around four key areas owned by no other than the Big 4 public accounting firms: principles of governance (led by Deloitte), planet (led by PwC), people (led by KPMG) and prosperity (led by Ernst & Young).

Attracting the best talent

To a large degree, consumer perspectives are driving ESG. Empirical research shows that many Millennials look to their work for fulfillment and choose to work in places aligned with their worldviews. They want work to be purposeful and give them meaning. That means they want their employers to be purpose-driven and doing “good.” Therefore, many firms believe that in order to recruit the best talent that they “have to have a voice around these ESG issues.” With a politically divided citizenry, the voice you choose exposes your firm to that division (see software developer Basecamp). We are already seeing major battles develop internally and externally around the Social dimensions and the use of Critical Race Theory training inside organizations (Coke, Disney, US Government, Deloitte, and MLB).

Generating revenue growth

As clients try to understand ESG, set up processes and policies, and implement the tools to measure and report them, ESG is fertile ground for new professional services offerings. For existing services, some buyers want to choose vendors that are aligned with ESG thinking. Many of the firms I’ve spoken to have not necessarily lost business because of ESG. However, they are regularly asked in RFPs to provide proof of ESG performance and know that they are being judged. The flip side is the risk of being on the receiving end of a consumer boycott because your products or practices displease buyers’ ESG sensibilities.

There are many more risks associated with ESG, but the bottom line, in my mind, comes down to ensuring that your firm has “permission to operate.” Unfortunately, often times, that is simply a matter of being acceptable to groups with a big bullhorn.

LISTEN: The Risks and Rewards of ESG Positioning

Understanding the way forward with ESG in Professional Firms

I’ve spoken to CEOs, HR leaders, and Marketing leaders at a number of firms and the rationales for aligning brands around ESG are very different.  One thing is for sure. This is uncharted territory and the rules change daily.  From my perspective, the adoption or rejection of ESG as a firm’s messaging and/or culture reflects a continuum from “Randian” free-market capitalists to full-blown “woke” corporate citizenry with a large roaming group in between.

Purpose-driven organizations are on the “woke” end of the continuum. These organizations are illustrated by the likes of Ben & Jerry’s, Patagonia, Google, and the Big 4 (who, as we have seen, have a HUGE stake invested in the reporting standards). The Shareholder Value crowd is on the opposite end of the continuum and are the Randian capitalists focused on wealth maximization (the Milton Friedman school of thought). This set is represented by companies like Koch Industries, L.L. Bean, and Whole Foods. At these 2 poles, strategic choices have been made. Whether or not the firms have read the tea leaves correctly, they have cast their die and have strategic clarity on which to move.

Nestled in the middle are the majority of firms I call The Herd. These are not industry leaders placing a stake in the ground. The Herd is made up of 2 types of firms. Half the group are Pragmatists who do enough to CYA. They have not fully committed one way or the other. Instead, they choose to keep their proverbial powder dry and options open given the political winds. The second half is The Unaware. They are the firms that have not been paying close attention to the changing tide. Both members of The Herd, like all firms who refuse to make hard strategic choices, could be at a strategic disadvantage. Time will tell.

Take Away

As I said, ESG ultimately is about ensuring “the permission to operate” in the markets you have chosen to serve.

Purpose-driven, Shareholder value-focused, and The Herd have many different rationales for pursuing or not pursuing ESG. No matter what, firms are going to have to confront the risks and rewards of ESG to be competitive because it’s being driven by a new generation of consumers who have clear expectations about business’ role in society and who are not going away. In the timeless words of Bob Dylan:

But you’re gonna have to serve somebody, yes
Indeed you’re gonna have to serve somebody
Well, it may be the devil or it may be the Lord
But you’re gonna have to serve somebody

Be prudent.

For a more in-depth analysis, Jason Mlicki and I just completed a 3-part ESG series on our Rattle and Pedal podcast.

How Will ESG Impact Professionals Services Brands?
In the great post-COVID reset, Environmental, Social, and Governance measures are moving front and center when accessing capital, proposing new business, and hiring talent. We discuss the strategic implications of ESG on firms and their brands.

The Risks and Rewards of ESG Positioning
Environmental Social, and Governance (ESG) may not be the simple, straightforward trend you think it is. How you position your firm’s relationship to each area presents rewards and risks to your brand and firm’s performance. Have you defined the risks and rewards for your firm?

How to Approach ESG Marketing and Branding Successfully
ESG will strategically impact professional services firms. Here’s how leaders can think about the ramifications to their firm’s positioning, demand generation, and employer brand.

Brand Professional Services

About the Author

Jeff McKay
Founder & CEO
Prudent Pedal

As a strategist and fractional CMO, Jeff helps firms set smart growth strategies in motion. He was the SVP of Marketing at Genworth Financial, the Global Marketing Leader at Hewitt Associates, and held senior roles at Towers Perrin and Andersen. Learn more.

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