Efficient & Sustainable Growth: How to manage ESG in Corporates
Environmental, Social, and Governance (ESG) include issues such as climate change, carbon emissions, human rights, labor standards, animal welfare, and governance. It has become increasingly important for businesses to address these issues as stakeholders increasingly demand transparency and accountability from organizations.
Promoting positive public relations by proactively addressing ESG issues goes beyond appeasing institutional shareholders. Implementation of a strong ESG program can enable companies to access large pools of capital and increase their brand awareness, which can boost their long-term growth.
Triple Bottom Line: The 3P Approach
The Triple Bottom line of People, Planet, and Profit is a term becoming relevant to investors and business decision-making. Instead of solely considering anticipated returns (i.e., the profits component), investment decisions are increasingly also considering environmental and social factors.
The positive and negative impact an organization has on its most important stakeholders. It includes employees, families, customers, suppliers, communities, and any other person influencing or being affected by the organization.
The positive and negative impact an organization has on its natural environment. It includes carbon footprint reduction, reducing the use of natural resources, reducing the use of toxic materials, etc., as well as active waste removal, reforestation, and restoration of the environment.
The positive and negative impact an organization has on the local, national, and international economy. It includes creating employment, generating innovation, paying taxes, wealth creation, and any other economic impact an organization has.
Benefits of ESG
Businesses that properly integrate ESG principles into their core identify cost-saving opportunities and enjoy low energy consumption, reduced resource waste, and an overall reduction in operational costs.
Here’re some reasons why ESG is important for your business:
Investing in ESG is key to tapping new markets and expanding into existing ones. The government is more likely to grant access, approvals, and licenses to corporations that offer fresh growth opportunities.
Reduced Regulatory & Legal Interventions:
By enhancing external value, companies can gain greater strategic freedom, easing regulatory pressure. According to a study by McKinsey if there is strength in ESG it helps in reducing companies’ risk of adverse government action.
Employee Productivity Uplift:
Incorporating a sense of purpose into employee motivation and increasing productivity can be achieved through an ESG proposition that attracts and retains quality employees.
Investment & Asset Optimization:
The allocation of capital to more promising and sustainable opportunities can be enhanced by a strong ESG proposition. Moreover, it may assist organizations in avoiding stranded investments that may not pay off due to environmental concerns in the long run.
How to Develop an ESG Strategy
Understanding What Drives Your Organization’s ESG Proposition:
The first step of building an effective ESG strategy is defining the organization’s environmental, social, and governance goals. Defining the ESG goals will also help the organization’s customers, partners, and employees identify and resonate with the brand’s sustainability goals.
Choose a suitable ESG framework:
ESG frameworks help track and measure the goals set in the proposition. ESG frameworks are pre-defined systems or structures that help standardize the disclosure and reporting of ESG metrics. ESG frameworks set the metrics and qualitative details that a corporation should disclose. They also provide the format and frequency of reporting. Some of the commonly used ESG Frameworks are:
Recruit ESG experts:
Establish an ESG task force with senior executives from different departments. This task force can provide direction for your ESG strategy and goals. Additionally, consult external ESG experts to complete certifications and enhance efficiency. Building trust among all stakeholders and achieving higher ROI require the right team to drive your ESG goals.
Collect ESG data from multiple sources:
The task force needs to compile and analyze data from multiple sources for ESG disclosures, including corporate social responsibility expenditures, emissions data, operating costs, and regulatory compliance data. Moreover, companies are required to calculate the carbon footprints of their suppliers and factories that provide outsourced manufacturing.
Promote The Performance:
Promoting the organization’s good ESG performance is vital to reap all the benefits of taking the sustainable path. Make sure to get the word out about the ESG initiatives with the right target audience and on social channels. It is very important to showcase the value of ESG in core company operations and ideas.
The concept of ESG goes beyond good intentions. It’s about creating a tangible, practical plan that achieves real results. Keeping up with climate change, promoting diversity, and releasing information alone is not enough to achieve success. The key is to embed these principles across the business – from investment to sustainable innovation. Get started with developing your ESG strategy right away with the help of SPC NXT’s ESG experts. Book a consultation to build a sustainable and future-proof business.
Frequently Asked Questions (FAQ)
1. Why is ESG important for companies?
ESG is important for a variety of reasons, from responding to investor pressure and managing financial risks to reducing costs and waste and improving public relations. Every company contends with ESG issues and neglecting them can significantly increase the risk of experiencing negative incidents or controversies. We’ll look at some of these issues in more detail below.
2. Are there legal ESG requirements?
There may be legal and regulatory requirements in your jurisdiction related to ESG issues – for example, concerning workers, human rights, products, corporate governance, data privacy, and security, emissions, and much more. However, usually, when we speak of ESG legal requirements and regulations, we are talking about measuring impacts and reporting. This area is changing rapidly. There are currently several voluntary standards for reporting to guide companies, and some countries are expected to adopt them as laws over the coming years.
3. What’s the role of ESG risk scores and ratings?
For companies, the main purpose of an ESG score or risk rating is to understand their ESG performance baseline. ESG ratings may be used in several ways, such as:
- ESG ratings provide transparency to investors regarding how exposed companies are to specific risks, and how well companies are managing them.
- Organizations increasingly rely on ESG scores or risk ratings to obtain specialized financing for sustainability programs and projects.
- Businesses use their ESG scores for benchmarking their ESG performance and demonstrating their commitments to stakeholders.
- Fund managers may rely on ratings to include companies in sustainable investment funds.
4. What are the benefits of an ESG strategy?
By putting in place an ESG strategy, companies, and their stakeholders can enjoy a range of valuable benefits, including improving investor and public relations, managing risk, reducing costs, and enhancing financial performance. The following questions will look at just a few of the broad benefits of incorporating ESG practice into your business.
5. How can ESG improve investor relations?
Implementing an effective ESG program can improve investor relations in various ways. On a basic level, an ESG program requires good communication with investors to understand their needs and to share your progress. Moreover, investors, especially asset owners and asset management institutions, now expect to see corporate ESG policies and practices across the spectrum of environmental, social, and governance issues.
6. How does ESG affect risk management??
ESG affects risk management because ESG practices are risk management practices. For example, companies that implement effective ESG programs may experience less exposure to supply chain disruptions and other ESG controversies. They may also find they are better able to respond when ESG incidents do occur.
In addition, stakeholders are increasingly relying on information about a company’s ESG efforts, including ESG ratings, to assess a firm’s risk exposures as well as its possible future financial performance. This applies to medium and smaller companies as well.
7. How can an ESG program reduce costs?
Effective ESG programs can reduce business expenses in several ways. For example, sustainable practices could significantly reduce energy and water usage and limit the cost of packaging and the amount of waste your company produces. In the human resources department, companies with good ESG practices can reduce costs by limiting turnover-related expenses and attracting talent from a wider pool of potential employees.