Future-proofing your business with ESG
By Vijay LNarasimhan, HLB Global Sustainability Advisory Leader
Companies or organisations are always looking for the best way to expand their consumer base and keep up with the times. While social media marketing can help, establishing an environmental, social, and governance (ESG) strategy is most effective. This strategy not only helps your company by attracting a more diverse workforce to bring in new ideas, but it also helps your business be compliant, gain a competitive advantage, and have a greater positive impact on the world.
What is ESG reporting?
An ESG report, also called a sustainability report, is a report that an organisation or company publishes about environmental, social and governance (ESG) impacts. It allows the organisation to be more transparent about the opportunities and risks it faces. It's a communication tool that plays a vital role in persuading stakeholders that the organisation's actions are sincere.
ESG reports provide a summary of qualitative and quantitative disclosures supported by an analysis of performance across the ESG factors:
- Environment: carbon emissions, climate change, water, and air quality, waste management, energy efficiency, natural resource conservation, biodiversity, and pollution.
- Social: data protection and privacy, customer satisfaction, gender and diversity, labour standards, human rights, community relations, and employee engagement.
- Governance: Audit committee structure, board composition, executive compensation, bribery and corruption, whistle-blowing policy, political contributions, and lobbying.
Why ESG is important for the future of your organisation?
A commitment to ESG can give your business a competitive advantage. According to research by Deutsche Bank, companies with high ESG ratings have a lower cost of debt and equity. Sustainability and ESG can help improve businesses’ financial performance while fostering public support. This means that aside from playing your part in making the world a better place, you can also future-proof your business and make it more competitive in the market. Here's why:
More growth and business opportunities
Millennials and Gen Zs are much more conscious about corporate malpractice, social justice, and preserving the environment. Combined with social media, these generations have released a digitally powered wave of activism where negative practices can be exposed quickly for anybody to look up.
This social awareness, combined with greater transparency, has caused many customers or consumers to use their purchasing power to punish or reward organisations that are meeting their ESG commitments. Most Gen Z consumers prefer sustainable companies and are even willing to spend 10% more on eco-friendly products. In fact, 75% of Gen Z consumers prioritise sustainability over the brand name when making purchase decisions.
As such, ESG strategy has now become an important part of public and brand relations, with a direct correlation to the bottom line. A good ESG implementation can help you increase your company's market share by tapping into the aspirations of socially conscious consumers, while ESG failure can have the opposite effect.
Attracting and retaining talent
With the increasing competition for highly sought-after talent, a commitment to ESG can work to your advantage. ESG can increase the consciousness of your company as you begin taking things into account other than profit or growth. This results in a more people-oriented culture, which can increase engagement and happiness.
An awareness of equality, diversity, and inclusion issues can create a safer environment for all people to take part in the workforce. Around 88% of millennials said that they want to work for an organisation that aligns with their values. Even if your company isn't in the most exciting industry, a mission and culture of stewardship can be an attractive proposition to the current generations.
Better investment opportunities
Aside from customer stakeholders, investors are critical to an organisation's ESG commitments as well. Private equity and venture capital funds, through pressure from limited partners such as pension funds, are looking at ESG for a number of reasons.
A business with a strong ESG program is a safer long-term investment. It's less likely to be regulated and fined by a government while also having products or services that tap into emerging, sustainable technology.
Impact investing is gradually becoming popular. Some investors are looking for ways to maximise their investment return in an ethical, philanthropic way.
A poorly managed ESG that leads to social or environmental fallout can also reduce a company's stock market performance and ROI for investors. A prominent example of this effect is the BP oil spill (Deepwater Horizon oil spill) that occurred in 2010. BP's stock dropped by about 51% in 40 days on the New York Stock Exchange after the incident.
In addition to poor stock market performance, your company's cashflow may reduce if you neglect your ESG commitments.
With increased regulations and public pressure, governments are imposing heavy fines on organisations for poor ESG implementation or reporting. In fact, the UK government alone issued around £27 million in fines in the financial year 2020-2021 to over 30 different organisations.
An operational shutdown is also something to consider. Besides environmental fallout ceasing operations, legal strikes from mistreated and poorly paid employees may arise. In worst cases, a regulatory body may intervene and permanently shut your company's operation down.
If you operate with physical services or products, you may also be able to cut down costs in the form of sustainable materials and processes, at least in the long term. Recyclable materials, reduced waste, and fewer energy expenses all play a part in keeping the cost of business lower.
Future-proof your company today
Companies that embrace all three elements of ESG will outperform their peers, while CEOs that are too slow to improve their company’s ESG performance will see an exodus of customers and a drop in profits far sooner than they ever imagined.
ESG is an essential tool for creating accountability, transparency, and confidence in your company for customers and investors. ESG will play a major role in investment decisions. Good ESG performance can determine the future of your company's success.
If you need help transforming your company and making it successful as it could be, reach out to us at HLB. Our team of experts can help you create, manage, and measure effective sustainability programs and strategies, address environmental and social challenges, and bring positive impact, tangible results, and create better businesses.