Auburn University business ethics scholars Linda and OC Ferrell say companies’ profitability has been tied directly to sustainability advancements and that 70% of consumers consider sustainability to be an important factor when making a purchase.
Linda Ferrell is the John Roth Family Faculty Fellow of Marketing and Business Ethics at Auburn’s Herbert College of Business. OC Ferrell is the James T. Pursell Sr. Eminent Scholar in Ethics and director of the Center for Ethical Organizational Cultures, also in the Herbert College of Business.
How are companies implementing sustainable practices while producing a profit for shareholders?
Profitability has been tied directly to sustainability advancements. Many firms have found that sustainable initiatives reduce costs, improve efficiency and develop positive consumer attitudes toward the brand. As companies address important issues that are of importance to consumers, the end result is more customer insistence on buying these brands, and that high level of commitment leads to greater profitability. Addressing sustainability concerns often leads to major innovations in the way traditional processes and functions are handled within the organization. Just as the pandemic has caused enormous innovation and efficiencies in organizations, sustainability initiatives can and are doing the same for business.
Are consumers looking at a company’s sustainability practices?
Research has shown that almost 70% of consumers consider sustainability to be an important factor when making a purchase, regardless of age or gender. Gen Z shoppers want to be more likely to pay more for green products than other age groups. In the 2022 CGS Retail and Sustainability Survey, 79% of consumers believe that sustainability is “somewhat important to very important” when purchasing apparel and footwear products. This means that consumers are particularly aware of the environmental damage that clothing/footwear manufacturing has on the environment. As consumers are increasingly embracing personal green practices, such as recycling, composting, avoiding plastic containers, etc., companies such as Patagonia have embraced consumers desire to “recycle” clothing through their website Worn Wear, which sells previously owned Patagonia goods. This has started a movement with competitors, such as Arc’tyrex, The North Face, REI and Fjallraven, offering similar ways to buy their previously used products and contributing to the circular economy.
What is the ESG—Environmental, Social and Governance—concept in business, and what is its importance in society?
Unlike social responsibility which is a more ambiguous goal in business, environmental, social and governance comes with specific metrics and evaluative measures. Sustainability lives within the “E” of ESG. Environmental refers to actions related to climate change, energy use, waste, pollution, recycling and more. An ESG framework helps an organization measure and quantify their efforts and benchmark against other companies. ESG sustainability metrics also relate to carbon footprint. ESG is now widely used by financial analysts, and Bloomberg has one of the most widely used ESG frameworks for measuring performance. Many investors, including mutual funds and exchange-traded funds, or ETFs, are avoiding companies with low ESG scores. The Securities and Exchange Commission is considering mandatory ESG reporting for all publicly traded companies. ESG reporting is already required in a number of European Union countries.
What are some of the controversies associated with ESG?
Increasingly, in recent months, ESG is being scrutinized by leading investment companies such as BlackRock and billionaire investors such as Peter Thiel and Bill Ackman (known activist investor). Their concern is that business is getting too involved in social issues and political debates. As the government is building ESG principles into pending regulations, a number of political leaders feel that agencies such as the SEC are moving too quickly to attempt to regulate corporate involvement in such activities. There are many supporters of Milton Friedman’s position that the job of business is to earn a profit for shareholders and, therefore, they should leave social responsibility to the government. At this point in time, this viewpoint is in the minority and does not address the fact that research has shown that high ESG scores correlate with increased profit and resulting benefits to shareholders.
How are companies using sustainability in their marketing efforts?
Many products are certified as green by environmental organizations such as Green Seal and EU Ecolabel and carry a special logo identifying them as green. This labeling and promotion allows consumers to readily identify sustainable brands. The big concern here has been unscrupulous companies who are engaging in “green washing.” Green washing is the attempt to look like you are environmentally concerned and proactive when you are not. The Federal Trade Commission has issued green guidelines to help marketers determine the truthfulness of green claims to reduce confusion in consumer decision making. Green washing causes serious repercussions when consumers learn they have been misled, including boycotting brands and generating significant negative publicity. Choosing your messaging carefully and being truthful and transparent is paramount to success in aligning marketing messaging with actual sustainability practices.
Can a culture of sustainability help employees recruit?
Edelman Trust Barometer data has shown, over the last several years, that consumers do not trust the government or other stakeholders as much as business leaders to deal with environmental issues. They would like to see businesses address sustainability and other social issues and will have a greater desire to work for those companies that embrace authentic sustainability efforts and accomplishments. In an era where it’s difficult to attract employees, finding ways to connect outside of pay, benefits, etc., can be increasingly meaningful. New Belgium Brewing gives its employees custom made “Fat Tire” bikes each year and encourages the employees to bike to work and use them in their daily lives. The company has also been a pioneer in employee ownership and letting these employee owners vote on environmental initiatives such as wind power, cooling innovations, etc. Kim Jordan, co-founder of the company, stated that employees are given free rein to innovate in sustainability measures, and if only 10% of what is tested succeeds, the program is successful.
About Linda Ferrell:
dr Ferrell is Roth Family Professor of Marketing and Business Ethics in the Department of Marketing in the Herbert College of Business at Auburn University. She served over four years as a board member for a NASDAQ listed company in the health and wellness market. She has published in Journal of the Academy of Marketing Science, AMS Review, Journal of Business Ethics, Journal of Public Policy & Marketing, Journal of Business Research, Journal of Macromarketing, as well as others. She has co-authored numerous books including Business Ethics: Ethical Decision Making and Cases (13th edition), Business and Society (7th edition) and Introduction to Business (13th edition). She serves on the Executive Committee, Board and Academic Advisory Committee of the Direct Selling Education Foundation. She served as inaugural co-chair of the International Society of Marketing and helped launch the organization. dr Ferrell is associate editor for the Journal of Marketing Education and served as a special issue editor for the Journal of Macromarketing. She is a past president of the Academy of Marketing Science. dr Ferrell also serves as an expert witness in ethics and legal disputes.
About O.C. Ferrell:
dr Ferrell is the James T. Pursell Sr. Eminent Scholar in Ethics and director of the Center for Ethical Organizational Cultures in the Harbert College of Business at Auburn University. He holds a Ph.D. in marketing from Louisiana State University. He was previously president of the American Marketing Association Academic Council. dr Ferrell is immediate past president of the Academy of Marketing Science (AMS). He received the AMS Cutco/Vector Distinguished Educator Award and was AMS, VP Publications. He is co-author of several leading textbooks and has over 40,000 citations on Google Scholar in leading marketing journals, such as the Journal of Marketing, Journal of Marketing Research, Journal of the Academy of Marketing Science, Journal of Business Ethics as well as others and has over 100 academic articles. He was recently elected to the AMS Board of Governors. He continues to serve as an expert witness in high-profile ethics, legal and marketing cases.