ESG is on just about every CEO’s agenda today. However, professional service firms need to be clear-eyed and strategic about evolving their capabilities and policies to avoid getting mixed up between achieving brand differentiation and brand qualification.

ESG is an awkward acronym. It sounds more like an obscure IRS/HMRC compliance procedure than an issue that may have existential implications for our civilisations. But, it’s quickly become a term that everyone in business is becoming very familiar with.

Even just two or three years ago, almost no one in professional services talked about ESG in a big way. Today almost everyone does.

It’s a highly emotive issue, which inevitably means it will influence brands. The brands of big companies and, as a direct consequence, the brands of the organisations that provide sophisticated services to them – law firms, banks, private equity firms, headhunters, and consultants of all shapes and sizes.

ESG is an issue on which some of these firms aim to differentiate themselves – to achieve competitive advantage in the eyes of their clients and talent pools.

At the same time, ESG is increasingly becoming a qualifier that all firms must stretch themselves to embrace, even if their strategy is simply to keep up and not be disqualified by some clients for important work.

Both strategies are viable, but leaders must decide which one they are pursuing, to avoid coming unstuck.

When they launch, firms find that the bar for market leadership has risen significantly.

Back to the future

Even just two or three years ago, almost no one in professional services talked about ESG in a big way. Today almost everyone does.

If you doubt it, try the website Wayback Machine which enables you to travel back in time and remind yourself what your competitors were talking about on their home pages and in their thought leadership in 2019.

ESG has moved up the agendas of professional service firms because it’s shot up their clients’ agendas. In October 2020, the FT ran an article headlined, “Investors pile pressure on companies over ESG at annual meetings”.

Two things are notable. The headline captures the speed and urgency of the issue for CEOs, and the FT’s sub-editors felt comfortable using an acronym, without qualification, that only a year previously would have confounded most of its readers.

From a marketing point of view, one consequence of the speed of change around the topic of ESG is that some firms considered their strategy at a time when brand differentiation appeared, at least at face value, to be a viable ambition.

However, by the time these firms’ efforts were ready to bring to market, they found that many of their close competitors had also been busy doing the same work in the background, over the same timeframe. So, when they launched, they found that the bar for market leadership had risen significantly.

In branding terms, of course, the prize of differentiation is much more attractive than the prize of qualification.

Physician, heal thyself

Equally, some firms looked at themselves at that time and rationally decided that “before we can claim market leadership in ESG, we need to sort out our own policies”.

This decision might have made perfect sense in terms of their ability to achieve brand differentiation at the time but, could be impacting brand qualification today – in terms of perceptions if not reality.

If instead, two years ago they had asked, “What do we need to do to keep up with the market’s ESG agenda”? They might have proceeded differently and by now might have been able to develop and talk about market-matching policies rather than market-leading ones.

In branding terms, of course, the prize of differentiation is much more attractive than the prize of qualification. However, the reputational risk of a failed differentiation strategy is also much bigger than the risk of one targeting qualification.

This was a bold and ambitious market leadership strategy, executed in a bold and ambitious way.

Beyond belief 

As an illustration of this, recall BP’s attempt at brand differentiation on climate change with its “Beyond Petroleum” brand strategy in the early 2000s. This was a bold and ambitious market leadership strategy, executed in a bold and ambitious way.

Stakeholders initially greeted the strategy with a mixture of enthusiasm and kudos for its vision on the one hand and skepticism and even cynicism for its perceived over-claims on the other.

None of us can know whether BP could have endured with this strategy and entrenched itself as the progressive Big Oil brand with a big impact on its employees, recruits, and stakeholders paying the most attention to this at the time – shareholders, NGOs, and regulators.

Because along came the Gulf of Mexico oil spill in 2010 that washed over BP’s Beyond Petroleum strategy like a tidal wave and consigned it to the scrap heap.

At the same time, BP’s Big Oil competitor Shell decided to pursue more of what could be called a qualifier strategy when it came to climate change even though they faced a near-identical landscape in terms of investors, NGOs, and internal employee pressures to BP.

For sure, Shell will have been chastened by BP’s experience after the Gulf of Mexico incident. Still, they had had many years before that in which to decide to pursue a more aggressive differentiation strategy if they had chosen to do so, and they didn’t. With the benefit of hindsight, Shell’s strategy looks smart.

It’s easy to say that Unilever feels powerful and authentic in its messaging on ESG.

Vitality for Life

For a counterargument look at Unilever and Procter & Gamble. Unilever set out on a highly ambitious brand and business strategy around ESG almost 20 years ago – although at the time the acronym hadn’t yet been invented.

It has served them tremendously well in terms of stakeholder admiration, hard-nosed investor sentiment, and employee engagement.

Starting with its vitality strategy in 2004, Unilever set out to achieve market leadership and brand differentiation around the themes of sustainability and social justice.

Their arch-rivals Procter & Gamble, have pursued many similar sustainability initiatives over this period. However, they have distinctly avoided being as bold on these issues as Unilever.

Consequently, Unilever has tended to be the company in the headlines when it comes to positive developments around ESG. In this case, Unilever’s bold and ambitious market leadership strategy can be judged to be a big success.

Take a look at the .com websites of Unilever and P&G today.

It’s easy to say that Unilever feels powerful and authentic in its messaging on ESG, “There’s no time to lose. We’re calling on governments, businesses, and partners to accelerate climate action.”

By contrast, Procter & Gamble comes across as timid and hesitant by contrast, “Stepping forward as a good corporate citizen.”

Fortune favours the bold when it comes to achieving strategic brand differentiation.

Takeaways on ESG and branding

Despite the unassuming acronym, ESG is here to stay in a big way in the world of professional service firms and their clients.

Leaders must take a clear-eyed decision on whether to pursue a market-leading/brand differentiation strategy towards ESG or a market-matching/brand qualification one.

Whichever route you take, be sure to set your ambition towards the market environment when you launch your ESG strategy, not when you commence working on it.

This is a fast-moving field, and what cuts it today may look weak in even just six or twelve months.

Get the whole leadership team engaged in it and make it a ‘whole-firm’ effort to address internal ESG policies and external ESG capabilities.

This will give you confidence that aspects of the ESG strategy beyond your direct day-to-day control will not be left on the sidelines.

And, with all due caution accepted, remember that fortune favours the bold when it comes to achieving strategic brand differentiation.