The economy is global and the political landscape is ever-changing. As a result, business leaders are putting more focus on their companies’ social, financial and environmental impact — or ESG — than ever before. This evolving global culture has brought about a new way of doing business, dubbed the “triple bottom line” approach. It differentiates between conventional bottom lines and a broader view of all stakeholders’ relationships with stakeholders like employees, customers, local agencies and even shareholders.
Before we dive into understanding why every business/company needs to incorporate ESG, let us break it down to its basics:
- Environmental, or ‘E’ in ESG, considers the influence of any business’s resource consumption on the environment, such as carbon footprint and waste water discharge, among other environmental influencing activities.
- The ‘S’ or Social criterion examines how a company interacts with the community in which it works. It also examines internal labor, diversity, and inclusion policies, among other things.
- The letter ‘G,’ which stands for Governance, refers to internal processes and rules that contribute to effective decision making and legal compliance.
ESG promotes long-term top-line growth by attracting talent, lowering expenses, and building customer confidence.
Why is ESG becoming more important?
There are several parallels being drawn between the unanticipated consequences of a pandemic and the climate issue, with both having a significant influence on the global economy. Many investors and governments have realized that there is a growing need to expedite investments and development in enterprises that value ESG. After all, our society is no longer just dependent on the government, but also on well-functioning enterprises that satisfy its demands, including job creation, equitable growth, natural resource protection, and consumer protection.
Is ESG relevant for all sizes of businesses?
While major corporations can afford to have dedicated teams to oversee and profit from ESG measures, small companies may benefit from speedier decision making, flexibility, and greater interaction with their consumers, which allows them to better understand their requirements.
Small ‘green’ initiatives done by small companies, such as converting to greener packaging, digital receipts, the use of renewable energy, and smart waste management, may go a long way toward helping them save money and reducing their carbon footprint.
Small and medium-sized enterprises (SMEs) with a strong ESG emphasis will be in a better position to attract attention as investors look to invest more in companies with high ESG standards. High ESG standards reduce the risk profile of SMEs by increasing top-line growth and decreasing operational and regulatory problems.
How do ESG policies help your company?
More and more companies are learning about the multifaceted and all-encompassing benefits of ESG, such as recruiting talent, addressing future customers, and supporting brand refinement and innovation. Overall, ESG prepares businesses to be resilient in present and potential future circumstances. To understand why ESG is more relevant now than ever, let us break down its primary benefits in detail:
Contributes to top-line growth
Businesses with a strong ESG strategy find it simpler to enter new markets and extend their operations in existing areas. Governments enable access by offering licenses and approvals to such businesses. According to GreenPrint’s Business of Sustainability Index research, which was issued in March 2021, 75% of Millennials are ready to pay more for a product that is ecologically sustainable.
Results in cost-efficiency
Companies that move to more sustainable manufacturing processes tend to be more efficient and cost-effective. Nestlé is one such example, having indicated that it will invest up to USD 2.1 billion by 2025 to transition from virgin plastic packaging to food-grade recycled plastics, as well as create other sustainable packaging alternatives. This would not only help it reduce its carbon footprint, but it will also save it money on non-compliance charges in the many regions where it operates, which have tougher restrictions regarding the use of plastic packaging.
Effective regulatory compliance and stakeholder management
Depending on the marketplaces in which they operate, all firms are impacted by one or more types of regulations. Businesses that implement effective ESG standards, particularly in governance, face less scrutiny from authorities and have greater operational independence.
Attracting and retaining talent and increasing staff productivity
It has been shown that strong organizations with high ESG ratings recruit superior people and have higher retention rates. Having a defined environmental strategy fosters internal pride among staff. The younger generation chooses to work for organizations that have higher societal obligations. According to a 2016 Cone Communications report on Millennial Employee Engagement, 64% of Millennials evaluate a company’s social and environmental responsibilities when considering where to work.
How should you begin developing ESG policy for your company?
When deciding on ESG practices, a company must examine a variety of variables. To begin, it must examine where it is in terms of implementing ESG measures. Is it just getting started, or has it taken steps toward ESG? This will assist in answering certain essential questions, such as:
If you are considering implementing ESG policies for your company-
- Determine the most crucial areas in which ESG should focus.
- Conduct an evaluation with your investors, board of directors, staff, and consumers to identify important ESG focus areas.
- Discover several ESG standards, guidelines, and policies.
- Allocate resources and develop initiatives that include accountability measures.
If your company has already begun producing ESG measurements and has progressed beyond the above stage-
- Sign up for several applicable standards and reporting frameworks, and look for your company’s industry-standard benchmark.
- Run your ESG measures via several internal assessments to ensure they fulfill the needed requirements.
- Ensure that your ESG plan adheres to the needed operational and governance model as indicated by investors and current compliances.
- Maintain awareness of evolving rules and the requirements of your stakeholders.
- Engage with other businesses, groups, regulators, and stakeholders to forge alliances and advance toward larger impact and improved ESG practices.
Conclusion
Organizations of all sizes must consider ESG for both short-term and long-term advantages, and they must continually adapt to shifting compliances and stakeholder expectations. Businesses must stay up to speed on the ease of access to enormous amounts of data and frameworks in order to save money and personnel time while executing their ESG strategy. Finally, firms should have timely access to information about their ESG performance in order to preserve strong investor relations. The benefits also include speeding growth, cost-cutting, effectiveness, recruiting talent, and targeting tomorrow’s customers, i.e. Millennials and Gen-Z, highlighting why ESG is more vital now than ever.
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