The textile industry is one of the most impactful sectors in the world, both in terms of its economic and social contribution and its environmental footprint. However, it also faces many challenges and risks, such as climate change, resource scarcity, human rights violations, and changing consumer preferences. To survive and thrive in this complex and dynamic context, textile companies need to adopt a holistic and strategic approach to environmental, social, and governance (ESG) issues. In this article, we will explore what ESG means and how textile companies can achieve ESG momentum, which is the ability to create financial value and increase broader impact from their ESG efforts. We will also share the insights from a McKinsey Global Survey that identifies the seven traits that set apart the organizations that have achieved ESG momentum.
ESG is an acronym that stands for Environmental, Social, and Governance. It refers to a set of criteria that can be used to evaluate the sustainability and ethical impact of an organization or an investment. ESG can also be used as a framework to guide the strategy and decision-making of an organization or an investor.
- Environmental criteria look at how an organization or an investment affects the natural environment, such as its carbon footprint, waste management, resource use, and climate change resilience.
- Social criteria look at how an organization or an investment treats people and communities, such as its labor practices, diversity and inclusion, human rights, health and safety, and social impact.
- Governance criteria look at how an organization or an investment is managed and controlled, such as its board structure, executive compensation, transparency, accountability, and compliance.
According to McKinsey Global Survey of more than 1,100 respondents in more than 90 countries, there are seven traits that set apart the organizations that have achieved ESG momentum:
- They approach ESG from a growth perspective, not just a compliance perspective. This means that they see ESG as a source of competitive advantage and innovation, not just as a way to meet regulatory requirements or avoid reputational risks. They proactively seek opportunities to create value and impact from ESG, rather than reactively managing ESG issues.
- They connect with external stakeholders and are accountable to them. This means that they engage with their customers, suppliers, investors, regulators, communities, and other relevant parties to understand their needs and expectations regarding ESG. They also communicate their ESG goals and performance transparently and credibly, and take responsibility for their ESG outcomes.
- They identify specific stakeholder priorities that align with their core business strategy. This means that they focus on the ESG issues that matter most to their key stakeholders and that are most relevant to their industry and market. They also ensure that their ESG strategy is aligned with their overall business strategy and supports their long-term vision and mission.
- They empower a C-suite executive to work with the CEO on ESG ambitions. This means that they assign a senior leader with the authority and resources to drive the ESG agenda across the organization. They also ensure that the CEO is actively involved and committed to the ESG vision and goals, and that there is a clear governance structure and accountability mechanism for ESG.
- They build a central ESG team and leverage talent from across the organization. This means that they have a dedicated team of experts who can provide guidance and support on ESG matters to the rest of the organization. They also tap into the skills and knowledge of their employees from different functions and regions who can contribute to the ESG initiatives and solutions.
- They embed purpose into multiple aspects of their business. This means that they have a clear and compelling purpose that defines why they exist and what they stand for as an organization. They also integrate this purpose into their culture, values, operations, products, services, and partnerships, and inspire their employees and stakeholders to align with it.
- They tie ESG metrics to compensation and use KPIs to track progress. This means that they have a set of measurable indicators that reflect their ESG performance and impact. They also link these indicators to the incentives and rewards of their leaders and employees, and monitor and report on them regularly.