Managing your operations without compromising on safety, sustainability and ethics can make all the difference to your reputation and your bottom line. It’s integral to winning new business, new investment, and shaping better futures.
Failing to do the right thing has the potential to damage your company’s long-term prospects and undermine value creation.
So in this, the first of three blogs, we take a look at the latest research on ESG (Environmental, Social and Governance) and the link between ethics and your business’s success.
This focus on ESG strategy is now an irreversible global trend. Organisations are realising that without meaningful ESG standards, policies, and actions, they will struggle to attract customers, investors or employees in the future.
Why is ESG important?
Sustainability has emerged as a source of competitive advantage, with studies linking consumer choices, employee opinions, investor decisions, media coverage and governmental policies to the sustainability performance of companies.
Here’s why top ESG companies are taking advantage of this:
- 92% of consumers are more likely to trust a company that supports social or environmental issues (Cone Communications LLC: Porter Novelli).
- 58% of employees consider a company’s social and environmental commitments when deciding where to work (Cone Communications LLC: Porter Novelli).
- 68% of investors have integrated ESG into their investment decision-making and seen greater returns as a result (State Street Global Advisors).
Our own global research of companies across the UK, US and Canada in 20211 found that:
- 9 in 10 now adopt ESG into corporate strategy
- Two thirds of companies report a significant impact on their business
- Two thirds already invest in systems and technology to capture data
- But half feel deterred from investing more
- This final point is cause for concern – this is where strong ESG leadership is required to future proof your business.
What are the ESG factors to consider?
From plans to achieve net zero through to effective ways of promoting diversity, equality and inclusion, ESG considerations are becoming increasingly important to demonstrate that your business can be a force for good, as well as for driving profits.
These are some of the key areas to build your ESG metrics around:
- Greenhouse gas reduction
- Natural resources
- Pollution and waste
- Skills investment
- Equality, diversity, inclusion
- Health, safety and wellbeing
- Community impacts
- Corporate governance
- Ethical behaviours
- Sustainable procurement
- Modern slavery
ESG strategy – what are the challenges?
Although the ESG statistics that our research uncovered are more obvious among larger companies with 250 staff or more, the impact of ESG on all companies is significant.
65% of respondees noted the impact was large or very large, while for businesses with more than 250 employees this figure went up to 73%.
67% were anticipating the scale of the impact to rise in the coming years.
53% have systems already in place to assess the three elements of ESG, while among larger firms this goes up to 57%.
Among those who don’t have a system in place, 66% said they planned to introduce one. But despite systems and measurements in place, there are challenges when it comes to ESG reporting requirements, namely the increase of hybrid working, accessing data across the organization, supply chain visibility, and a lack of necessary tools and technology.
The commercial benefits of an ESG focus
When done effectively, an ESG program should set a challenging balance that changes behaviors to provide commercial benefit.
From a value creation perspective, these can include:
- Cost savings: Waste reduction, materials, utilities, travel, insurance premiums
- Driving sales: Both B2B and B2C customers are increasingly considering sustainability as a core part of purchasing decisions
- Access to finance: Financial institutions are starting to give ESG incentives to companies looking to borrow money
- Meeting expectations: Financial disclosures, verification against public targets
- Employee engagement: Recruitment, development and retention
The most successful organizations are engaging with sustainability in a more meaningful way, recognizing the increasing scrutiny from legislators, consumers, employees and investors – as well as the financial impact of fines. With this in mind, an effective ESG strategy is now a must-have.
This opportunity has never been more timely. Post-pandemic, many are using the situation as a catalyst to revisit the viability of their business models and make changes to thrive in the future. So there is a clear focus on building back better and companies must work to make it happen.
1 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.