While ESG (Environmental, Social, Governance) has been brewing for a while, it is mainstream now, driven by united demand from stakeholders, including employees, investors, and customers. All three groups seem to have shifted from a passive to an active stance and are forcing companies to take action on these topics. We discuss the benefits Companies see as they focus on ESG initiatives here.

What is ESG?

ESG has become a major topic of focus in the modern corporate world. Although it is usually associated with things like climate change, pollution, and resource scarcity, in reality ESG also covers a much wider spectrum of socio-economic issues. More specifically, ESG represents a framework for measuring the sustainability and societal impact of businesses. Below is a brief overview of each of the 3 ESG elements.

Environmental – focuses on corporate measures and policies aiming to improve a business’s overall environmental sustainability and impact on energy and raw material waste, carbon emissions, and climate change.

Social – focuses on the level of social responsibility of businesses and its commitment to human rights, diversity and inclusion, work safety, community relations, consumer protection and personal data protection.

Governance – focuses on internal policies, controls and measures taken to ensure the legal and compliant operations of an organization such as statutory reporting, auditing, cyber security, risk management, etc.

Benefits of ESG initiatives

Although it may seem as though this is a new trend, research has shown that companies that are putting ESG initiatives on the top of their agenda are experiencing benefits from doing so. According to latest research and analysis, ESG can benefit an organization in the following key ways:

1. Facilitating top-line growth – A strong ESG proposition and integration can help attract new business opportunities, meet competitive challenges and speed up growth by strengthening relationships. Specifically, recent consumer research by McKinsey has revealed that up to 70% of consumers surveyed across multiple industries are willing to pay an extra 5% for a green product if it met the same performance standards as a non-green alternative.
2. Increased outside investment opportunities – Today ESG data is widely used by investors as a key indicator of the long-term financial success of companies. As more investors look to put money into companies with stronger ESG performance, larger pools of capital will be available to those that do so. Research shows this happening not only in equity markets but also in loan markets, where some banks are linking interest rates on loans to ESG performance.
3. Optimizing investment and reducing costs – Research has shown by allocating capital to more sustainable investments, organizations benefit from higher investment returns in the long term. Further, analysis against downstream, direct, and upstream activities of a business with a focus on key metrics has shown improvement on energy and raw material waste which has a direct positive impact on operating profits.
4. Minimizing regulatory and legal interventions – An effective ESG integration can improve transparency and thus reduce the general regulatory burden on organizations. While the biggest benefit of ESG from a regulatory perspective is reducing the risk of adverse government/legal actions, it can also attract its support as stakeholders push for a greener economy.
5. Talent management – Generally, a strong ESG proposition can attract and retain the best talent and drive work motivation by instilling a sense of purpose that can further improve productivity and employee satisfaction.

As increased demand from stakeholders takes hold, ESG is proving to mean much more than just a feel-good exercise. Is your business beginning their ESG Journey? Contact us for help determining the right path forward for your business.