Ethics and sustainability – good business sense?

Ethical behaviours and practices which have a negative impact on the environment played a prominent role in the minds of many consumers when making buying decisions in 2020. In many cases, the way businesses have behaved during the Coronavirus pandemic have served to heighten consumer awareness.

However, the relevance and importance of ethical behaviours and environmental sustainability to consumers has been increasing for several years. Generation Z and millennials have been a key driving force in raising awareness of ethics and environmental sustainability.

Ethics isn’t just for good – it affects the bottom line!

Social media has given consumers a 'voice' to raise issues and condemn unethical behaviours and negative environmental impacts. According to the Accenture Strategy’s 14th Annual Global Consumer Pulse Research, 50% of consumers concern themselves with the ethical positioning of businesses. More importantly, 37% were prepared to move their business away from a brand they considered not to be behaving ethically.

There is a vast array of ethical considerations that consumers care about and that businesses need to be thoughtful of, including many that may be considered to fall within the 'human rights' category.  Modern slavery, trafficked labour, highly exploited labour, health and safety risks, and discriminatory practices can and are scruntinised. Similarly, the impact that the operations of a business, and the impact that the end consumer products have on the environment are key 'influencing factors' on your customers’ perceptions of your business. You need to consider your records on emissions, pollution, the use of plastics and other 'waste creating' materials, and water usage.

Whilst businesses may consider that 'the customer is king' and therefore consumer behaviour should rank top in terms of reasons that a business should be motivated to ensure it behaves ethically and in an environmentally friendly way, you should not underestimate the importance of other stakeholder groups, such as employees and investors.

Employees

Consider first the employee stakeholder group. Talent acquisition, retention and motivation are important priorities for most businesses. Equally, recruiting, retaining and motivating talent can also be one of the biggest challenges for many businesses. Research and various other indicators point towards enhanced employee engagement when employees view their employer organisation as having 'a positive purpose' beyond simply generating profitable turnover. Richard Branson is well-known for this quote: “Clients do not come first. Employees come first. If you take care of your employees, they will take care of the clients.” This is backed by a study conducted by the Society for Human Resources Management. It found that those businesses with corporate social responsibility programs enjoyed 55% better employee morale and 38% higher employee loyalty (SHRM: HR Central to Organisations' Sustainability Efforts).

Investors and shareholders

Investors are also paying greater attention to the ethical and sustainability credentials of their investee companies. Consider the recent Boohoo scandal. This was revealed by a Sunday Times exposé in July 2020 which identified very poor labour practices in Boohoo's supply chain, including in factories in Leicester. Workers were being paid below the minimum wage and were subjected to extremely poor working conditions, including health and safety violations. There were also suggestions that workers were being forced to work during the lockdown arising from the pandemic without proper social distancing or PPE. Boohoo's share price dropped by 25% within a day of publication. Following on from the article, Alison Levitt QC was appointed to conduct an independent review. Her report will have made for uncomfortable reading for the Boohoo Board of Directors. Levitt QC comments that many of the failings "…are attributable to the fact that Boohoo's governance system has failed to keep up with the growth of the company." Another observation, which it's fair to assume would be of concern to investors, was the observation that no Board member commented on their duty to shareholders to avoid a situation developing that causes "severe reputational damage".

Adopting ethical behaviours and seeking to ensure the implementation of environmentally sustainable practices makes good business sense. It can attract consumers, enhance consumer loyalty, engage and motivate employees and deliver shareholder value. It is good governance.

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