The Business Benefits Of Improved ESG Performance

Stock photo by Vecteezy

By: David Picton, SVP of Sustainability at Alcumus

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Having robust and credible ESG (Environmental, Social, and Governance) policies in place has never been more important for organizations. According to the latest research from PwC, 83% of consumers think companies should be actively shaping ESG best practices and 91% of business leaders believe their company has a responsibility to act on ESG issues.

Companies that fail to implement an effective plan risk falling behind competitors and damaging their reputation with stakeholders, suppliers, and consumers. This could have serious consequences for their long-term future.

In addition to the reputational risk, failing to manage resources effectively, reduce carbon output and adopt more sustainable processes could have serious consequences for the planet. This is a topic all business leaders need to be across. In the first of our three blog post series on this issue, we look at the latest ESG research and the impact of ethics on a business’s success.

Organizations are realizing that focusing on ESG strategies is an irreversible global trend, and without meaningful ESG policies, actions, and standards, they will struggle to attract and retain employees, customers, and investors.
 

Why the focus on ESG?

It is no longer acceptable for organizations to simply be focused on delivering profits. Numerous studies have shown that acting responsibly and considering the long-term impact of their operations is key. From consumers and employees to investors and governments, all are becoming increasingly concerned with sustainability, and this is affecting their views and choices.

Here are just a few reasons why effective ESG policies are so important:

• 92% of consumers are more likely to trust a company that supports social or environmental issues (Cone Communications LLC: Porter Novelli)
• 53% of people won’t work for a company they consider to be unethical (Robert Half Talent Solutions)
• 73% of investors state efforts to improve the environment and society play into their investment decision-making (Harvard Business School)

In 2021, our own research with organizations across the UK, US, and Canada[1] uncovered the following:

• 90% of companies have added ESG into their corporate strategy
• Two-thirds state that this has had a significant impact on their business
• Two-thirds are already investing in systems and technology to capture ESG data
• However, half of those surveyed felt discouraged to invest in this area more

The fact that such a significant proportion of companies feel deterred from investing further is very worrying. It points to the fact that decisive ESG leadership is needed to make sustainability happen.
 

What are the ESG factors that organizations should address?

ESG covers a wide range of areas from working towards net zero to supporting community projects in your local area. There is a growing need to show that your business is concerned with more than just profit and that it has the right ESG considerations in place to make a difference to those directly and indirectly impacted by your actions.

Your ESG metrics should take into consideration the following areas:

Environmental

• Protecting the environment
• Reduction of your carbon footprint
• Making the most of natural resources
• Better waste management
• Encouraging biodiversity

Social

• Developing talent
• Equality, diversity, inclusion
• Supporting the health, safety, and wellbeing of employees
• CSR

Governance

• Corporate governance
• Ethical activities
• Sustainable procurement
• Modern slavery
   

ESG strategy – what are the challenges?

While we know from our research that the impact of ESG is felt more keenly in larger organizations that have more than 250 employees, the ESG statistics show that all companies are affected in some way.

• 65% of those who responded said the impact was large or very large, this rose to 73% for those working in organizations with more than 250 employees
• Two-thirds believe that this impact will rise in the next few years
• Overall, 53% have already invested in ESG systems, with 57% of larger organizations already taking this step
• 66% of those that don’t have a system state that they are looking to introduce one

However, just having a system in place does not solve all the issues. Things like more flexible working practices, integration with other IT systems, and control and visibility across supply chains all present challenges to ESG reporting requirements.
 

How an ESG focus provides commercial benefit

There doesn’t have to be tension between ESG initiatives and benefits to the bottom line. An effective ESG program should prompt people to think about their behaviors and find better processes that benefit all concerned.

These can include:

• Cost savings: Improved waste management, better use of resources, or more careful considerations around how and when employees travel
• Increased sales: Both business and commercial customers both want to buy from organizations with clear sustainability policies
• Access to finance: Financial institutions are increasingly concerned with ESG and look more favorably on those with compelling ESG programs
• Meeting expectations: there are more legal requirements to publicly disclose ESG policy and these will only increase with the push toward net-zero
• Employee engagement: Employees increasing want to work for organizations that are committed to delivering on an ESG agenda, taking action to back up their words

The organizations that will thrive in the future will be those that take sustainability seriously, recognizing that is more than a tick box exercise. Committing wholeheartedly to working responsibly makes commercial as well as ethical sense. An effective ESG strategy is now a must-have for all companies.

The time to act is now. 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.

There is a clear focus on building back better and companies must work to make it happen.

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[1] An online survey with a sample of 621 businesses (207 in each of the US, Canada, and the UK) was conducted between 28 September and 11 October 2021 among senior managers working in a role that demands knowledge of ESG or Sustainability requirements or processes for the business