Name a business that doesn’t want to enhance productivity, increase growth, attract talent and reduce operational costs.
But what about protecting your organisation’s reputation and image? In the second blog in our series, we continue our journey through the latest research on ESG (Environmental, Social and Governance) and how businesses can reap rewards from ESG integration. And while productivity, growth, attracting talent and reducing costs all play a major role, it is ‘improved image’ that comes out strongly as the single biggest benefit named by a large number of responders.
So, the business case for ESG is strengthening, and organisations are responding for good reason. This increased focus on ESG principles shows that companies are already seeing the benefits of incorporating it into their business model. Meanwhile, it’s becoming clear that organisations which don’t put their people, their governance and the planet at the heart of what they do, will struggle to thrive or even survive in the future.
“It’s becoming clear that organisations which don’t put their people, their governance and the planet at the heart of what they do, will struggle to thrive or even survive in the future.”
If you missed it, you can read our first blog on ESG and value creation. But for now, let’s dive in to the findings.
Integrating ESG into your Business
As an integral part of value creation, finding opportunities for profitability and competitive advantage will always be a key priority for businesses worldwide.
But as legal requirements increase, alongside the need for greater transparency, those who chose to adopt an ESG framework to drive business decisions are embarking on a more sustainable journey towards their future success.
Large organisations are already moving rapidly forward with an ESG implementation roadmap, with many smaller businesses also following suit. So those who are not acting with urgency will now fall behind.
So, why is ESG important? What is driving businesses globally to incorporate ESG guidelines into how they operate?
Our own global research of companies across the UK, US and Canada in 2021 found that:
- Gaining an ‘improved image’ is the greatest benefit reported by 60%³ of companies surveyed.
- Regulation (55%) and pressure from investors and customers (54%), are the main reasons² for incorporating ESG.
- This was followed by enhanced productivity, business growth and reduced operational costs, named by 38%, 37% and 36% respectively.
- 97% expect to see further benefits coming from this stronger focus on ESG performance.
- 28% expect to see improved employee satisfaction; 25% cited increased productivity; 23% improved access to investment capital; and 22% on reducing operational costs.
Based on these findings, it’s clear that while effective ESG adoption comes with upfront investment, the mid to long-term benefits are significant and it’s an opportunity to not be missed.
“While effective ESG adoption comes with upfront investment, the mid to long-term benefits are significant and it’s an opportunity to not be missed.”
Here are just some insights around companies realising the benefits of adopting ESG performance standards:
- Companies that show strong levels of sustainability and trust (alongside high levels of innovation) perform better than their industry peers, showing 3.1% higher operating profits and greater returns to shareholders. - (Accenture)
- ESG programmes will contribute more shareholder value in five years according to 83% of C-suite leaders and investment professionals. - (McKinsey Global Survey 2020)
- Investment professionals say they would pay a 10% median premium to acquire a company with a positive ESG record, rather than one with a negative record. - (McKinsey Global Survey 2020)
What is the Impact of Sustainability on Business Practice?
Whether your business, large or small, is prepared for it or not, changes in the ESG world will have an impact on how you operate in an ethical and responsible way. Failing to do the right thing has the potential to cause social, economic and environmental damage, challenging your long-term prospects in the process.
While there is no ‘one-size-fits-all’ answer when it comes to understanding ESG risk management, finding the framework that works best for your sector and nature of operations will help you meet your goals.
Here are the key aspects that your business should focus on by investing in more sustainable practices:
- Management needs to align strategy and sustainability.
- Focus on compliance first, then on how to achieve a competitive advantage.
- Move from a reactive position to being proactive; don’t start from the consequence of a crisis.
- Link sustainability to your business case and put realistic metrics around your ESG objectives.
- Use transparency as the basis for assessing and improving sustainability performance.
- Encourage the board to engage with key stakeholders such as governments, policy makers and NGOs.
- Involve your teams so that sustainability becomes a core value.
- Seek feedback and continually improve, allowing you to see where you’ve made improvements, which initiatives are working well, and what you need to do next.
Building Business Resilience and ESG
The most successful organisations are engaging with sustainability in a more meaningful way, recognising the benefits on offer. With this in mind, an effective ESG strategy is now a must-have. That means having data visibility around key ESG metrics including Modern Slavery, Carbon, Waste, Anti-Bribery and Social Value.
So where do we go from here? It will remain important that the collective efforts of policy makers, businesses and individuals continue to go hand in hand so companies of all sizes can act more responsibly and reap the benefits.
“It will remain important that the collective efforts of policy makers, businesses and individuals continue to go hand in hand so companies of all sizes can act more responsibly and reap the benefits.”
 Online survey with a sample of 621 businesses (207 in each of US, Canada and UK) conducted between 28 September and 11 October 2021 among senior managers working a role which demands knowledge of ESG or Sustainability requirements or processes for the business.
² Pressure from customers named by 36%, pressure from investors named by 42%
³ Improved image with customers named by 46%; improved image with investors named by 33%