ESG (Environmental Social Governance) is a term that is used to describe a wide range of sustainable and responsible finance components for a business. By implementing ESG and sustainability reporting, you can ensure that the framework you have in place for your business is working effectively and that you understand the value ESG brings to your business and where you still need to make improvements.
What is ESG?
Good ESG reporting brings together all data within a company to explain the added value amongst the three following key areas:
- Environmental – analyse the impact your business has on the environment, from your choice of suppliers, energy consumption, work processes, and overall carbon footprint of the company.
- Social – how do you manage relationships with customers, suppliers, and your own employees? What are the working conditions, health and safety standards, and diversity policies?
- Governance – leadership is vital to ESG, data should be tracked to look at internal controls, shareholder rights, audit processes, gender pay, executive pay, diversity of the board, and processes to deal with corruption.
ESG and value creation
Good ESG for any company will lead to increased profitability over time, but it might be difficult to understand how to direct link specific ESG scores to value creation. This can be achieved through a breakdown of the key drivers of ESG as it is used to drive improvements, profits, and cashflow for companies in wide and varied industries.
Top-line growth
A business environment that concentrates on trust and transparency, and where key ESG templates and KPIs are monitored, helps to create a situation where a company can tap into new and existing markets. Consumers are loyal, and if you can build trust through careful implementation of ESG policies, then you can attract new customers and build a loyal customer base.
ESG drives customer preference in the modern age, with many consumers willing to pay a little bit more money for a product or service if the company holds similar ideals to themselves.
This could mean paying 5% more for a product that is ‘green’ and environmentally friendly but offers the same level of performance as a rival product that is ‘non-green’. Younger generations are more environmentally conscious in how they consume products and services, more so than any generation before them, and this is why good ESG shines through for a brand with a younger audience.
Cost reductions
Clever implementation of ESG doesn’t only help your company improve its brand image, it also has many practical benefits too, such as helping you to significantly reduce operating costs. With the price of raw materials on the rise, the better and more efficient use of resources helps to combat this cost and actually help you reduce your costs overall. Companies that push sustainability the farthest, tend to have the best results when it comes to a reduction in costs.
There may be an up-front cost to implementing sustainable processes, but as a business you do sometimes need to look beyond the initial challenges and consider what a long-term investment looks like. Solid ESG reporting helps to see the data in a way that shows a clear path to that future.
Reduced regulatory challenges
Strong ESG provides greater strategic freedoms for companies and helps to limit pressures from legal and regulatory bodies. A strong ESG external-value proposition reduces the risk that a company will face from government interaction and action with companies that are failing to adhere to environmental concerns and long-term state targets in terms of carbon emissions and work processes.
Increase productivity
Alongside the modern consumer willing to pay more for a product that is ‘green’, a company that demonstrates strong ESG practices are also much more likely to appeal to a modern employee. Over time, this can lead to clear increased productivity, motivation, and high levels of job satisfaction. It is understandable that if you believe that the company you work for have the interest of the wider world at the heart of policy, that you are more likely to be happy working there, fully motivated, and work harder and more efficiently. Weak ESG policies have the opposite effect, leading to worker slowdowns, potential strike action and the like.
Secure greater investment possibilities
Attracting investment at key times in the life of a company is integral to its survival and growth potential. A robust ESG proposition enhances the appeal to investors and ensures that you can allocate capital to sustainable opportunities and grow your investment returns. Standing still and changing nothing only leads to profits diminishing over time, and it is important that you continue to move forward to attract new investment.
Good ESG and sustainability reporting helps your business to get to grips with the key data and information relating to your approach to ESG. There are direct links between ESG and value creation for businesses within myriad industries, and if you have the reporting software to collect, collate, and help you analyse the data around it effectively, you’ll soon have the tools to keep on evolving and improving standards across the board within your organisation.
