ESG Compliance: The Inevitable Future for Brands

Very few issues in the past couple of decades can hold a candle to the significance and indiscriminate impact of global climate change.

The issue of climate change was at first met with sheer disbelief and even ridicule, those who dared to speak up for the environment were often labeled as alarmists. Things are very different today, where inaction or indifference towards addressing the detrimental impacts we collectively have on the environment, stemming from decades of mindless consumption, are deemed irresponsible.

Following years of collaborative efforts, at first primarily aimed at minimizing individual ecological footprints such as the prominent Reduce, Reuse, and Recycle initiative, people are justifiably calling on brands and corporations of all sizes to assume greater responsibility in mitigating environmental impact as much as possible, if not entirely eliminating it.

The growing expectation for brands and corporations to be transparent and actively reduce their ecological impacts is gradually transforming the consumer landscape. Eventually, all brands will need to adopt these practices to remain relevant to their audience.

As the leading House of Next Generation Brands, Hypefast offers a perspective on what this growing expectations mean for Indonesian local brands, and to not only navigate and adapt to this rising demands, but to see it as an opportunity to strengthen their brand positioning and capture the attention of new customers in the future.

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ESG: The New Standard

ESG, which stands for Environmental, Social, and Governance, refers to a set of criteria used to evaluate a company's effects on society and the environment, as well as its transparency and accountability. Beyond environmental concerns, ESG evaluates a business's societal impact and the strength and transparency of its governance, including aspects like company leadership, executive compensation, audits, internal controls, and shareholder rights.

Although ESG has established a significant global presence and relevance, it is still in its early stages in Indonesia, having only recently been considered a requirement for companies going public. Nevertheless, 88% of publicly listed companies in Indonesia submitted sustainability reports in 2022, indicating that ESG is quickly and steadily gaining importance and influencing public perception of certain companies.

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It Trickles Down: The Shift in Consumer Demands

Everyday actions signal readiness

Although a full ESG assessment is not likely to be imposed to companies of all sizes, where the focus will lie with larger corporations especially those with means of going public, its influence trickles down to even business of moderate sizes and various industries.

On a broad term, Indonesians are now more active than ever in ensuring that they are living a more sustainable lifestyle; demonstrating stronger synergy between understanding environmental issues and taking actions. A study done by UOB Indonesia in 2022 highlights that more than half of its respondents have started taking steps in being more sustainable in their day-to-day life; choosing to use reusable bags than disposable plastic bags, reducing food waste, and switching to energy-efficient appliances.

When it comes to shopping behavior, a study done by PwC Indonesia uncovered a growing sentiment and willingness for brands who are more responsible towards their impact towards the environment. The study suggests, among Indonesian consumers:

• 57% prefer products with eco-friendly packaging.

• 71% are willing to pay more to support environmental causes.

This growing awareness are increasingly becoming influencing decisions in other sectors such as, but not limited to, fashion, where a study done by BCG shows that 36% of consumers are actively looking for more responsible options when shopping for clothes. This study shows that consumers are not merely aware of the environmental impact that businesses has, they are also willing to take actions that are align with this emerging concern.

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Future Outlook: How Local Brands Can Adapt

ESG is not a trend, it's a growth engine; the earlier a brand adapts, the more opportunities will be unlocked.

Moving forward, it will become integral for brands to incorporate sound ESG strategies into their business strategy. It will no longer be enough for brands to capture the market through trend-driven marketing, picture-perfect campaigns and appointing the most trendy brand ambassadors. The aforementioned marketing toolkit will inevitably still be a key part of the marketing strategies repertoire, adept in attracting attention, but in the future it will not enough to hold it.

In the future, consumers will be more drawn towards brands that are not just telling compelling stories, but living it; showing clear examples through their actions on how they're doing their part in building a more sustainable future.

Brands need to show that they are actively giving back socially and environmentally, especially to those who are in their immediate reach. Brands need to be wary, however, for any actions or communications that may fall under the act of greenwashing. Consumers are far wiser today, possessing enough wisdom and knowledge to question discrepancies between green claims and business actions.

It's also worth noting that for brands to grow, the importance of attracting high-quality talents are not to be underestimated; behind every brands are the people who built it. Today's talents, particularly Millenials and Gen-Z, are attracted to purpose-driven work. In the US, 66% of Millenials are expressing interest to take a pay cut for work with higher purpose, and 25% of Gen Z have turned down job offers due to poor ESG records. This trend is likely to become more common among Indonesians, making strong ESG compliance a key factor in attracting talent in the future.

At Hypefast, we believe that ESG compliance should be treated as a launchpad and not as another requirements to be fulfilled. Complying to ESG requirements should not be about chasing trends; it is about choosing survival, resilience and growth; ensuring that brands remain relevant to the growing consumer demands. To those with the right point of view, ESG is not a trend nor another bureaucratic requirements, it's a growth engine; and the earlier a brand adapts, the more opportunities will be unlocked.