The real risks of missing ESG goals: buycott versus boycott

Okay, let’s get the “perfunctory stuff” out of the way.

In August 2021, document management company IT Glue reported, “Non-compliant businesses are also at serious risk of security breaches, loss of productivity, reputational damage and more. The cost of non-compliance is estimated to be over three times higher than the cost of compliance.” 

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Now, I wish I could say this is enlightening, revolutionary news that will be a moment of great epiphany for you but how about some tangible numbers?

In her 2022 post – The True Cost of Non-Compliance, Sarah Gayda wrote, “In 2018, non-compliant companies were subject to $3.945 billion in penalties and another $794 million in judgments related to SEC investigations and complaints. In addition, FINRA imposed $61 million in fines.”

I can even make it more granular by citing the following case examples from the above Gayda article:

“Most recently, J.P. Morgan was fined $200 million for record-keeping violations, Marriott was hit with a $124 million fine in 2019, Equifax paid $575 million for its 2017 breach, and Uber paid $150 million for a breach in 2016.”

While the above research and corresponding statistics are true and accurate when you read them, are they a call to action or a regurgitation of ubiquitous information? In short, will they make a difference and inspire you to take action?

The bottom line 

Let’s consider Marriott’s fine of $124 million in 2019. 

In February 2020, Business Travel News reported the following under the heading - Marriott finishes 2019 with mixed results:

“Fourth-quarter year-over-year net income was down 12 percent at $279 million. Full-year net income declined 33 percent to $1.28 billion.”

While you contemplate the above numbers, I want you to note the following from the same report:

“Marriott Bonvoy loyalty members accounted for 52 percent of occupied rooms in 2019, a 250 basis-point increase, year over year. Member share reached 58 percent in North America, up 320 basis points.”

Here are two thoughts that immediately come to my mind:

• Which number do you think would get the most attention from the board – a $124 million fine against $1.28 billion in net revenue or a net income decline of 33 percent?

• Member, e.g., brand loyalty, increased by 250 basis points and 320 basis points, respectively, in key areas of customer relationships.

Before answering the above question, consider the following – Statista reports that Marriott generated $20.77 billion in revenue in 2022, up from $13.86 billion the previous year.

A new normality

During the pandemic, most organizations’ attention shifted to acute challenges such as cash flow management, supply chain resilience, and maintaining customer engagement and satisfaction.

How much of a priority was ESG compliance during this crisis period? 

Last week, the World Health Organization announced that the COVID-19 pandemic was no longer a global crisis. How vital will ESG compliance be in this period of new normality?

Will increasing fines be the primary driver of setting and achieving aggressive ESG goals?

I will let you research that question by typing into Google – or ChatGPT if you prefer - “how effective are fines at changing corporate behavior?”

In the meantime, another theory suggests that while financial deterrence is a short-term ouch, there is perhaps a “motivator” that is more powerful and enduring than penalizing dollars.

Buycott versus boycott

When it comes to maintaining a strong level of sustainable ESG policies and practices, the January 2023 Kellogg Insight article, “How much do boycotts affect a company’s bottom line?” makes for interesting reading.

Based on the article’s Goya case example, the #buycott versus #boycott group has considerably more sway and, ultimately, influence in shaping a company’s ESG behavior and compliance.

In the case of Goya, “Over a two-week period immediately after the CEO’s remarks, 16.9 percent of buyers who bought Goya products were first-time Goya buyers - evidence of the buycott’s impact.”

Meanwhile, “the brand’s most valuable customers, Latinos, did not decrease their purchases of Goya products, despite vocal support for the boycott movement from prominent Latino figures.”

On a more personal level, how many of you have made a reservation at a hotel based on their having a “re-use your towel policy” for the environment? I know it’s an overly simplistic example. However, my point is this – companies can’t establish their ESG goals in a vacuum based solely on the threat of penalties. 

Ultimately, the biggest reason for ESG compliance extends beyond the balance sheet relative to fines, falling directly on the shoulders of your business’s customers.

In short, what impact will your organization’s compliance have on your brand’s reputation with the people who matter most? Based on that, govern yourself accordingly.