What are the benefits of strong ESG practices?
We’re living through a period of extreme change and uncertainty. Alongside the not-so-small matter of the pandemic, social issues around race and gender have risen to the top of the news agenda – while warnings about the climate emergency have become increasingly stark. For businesses, it has become imperative to be transparent and proactive in the implementation of environmental, social and governance (ESG) principles.
ESG covers multiple aspects of how corporations impact society and the world around them. The environmental element relates to how companies use energy and resources, while social issues include company culture as well as inclusivity and diversity in recruitment. Finally, governance relates to legal compliance alongside internal controls and structures.
So what’s the big deal? In 2021 and beyond, having a strong ESG strategy has become important for a business’ bottom line as well as its public reputation. Consumers and investors are taking increased interest in corporate responsibility and are voting with their wallets, while new regulations are imposing harsher penalties on those not up to standard. The UK has mandated compulsory financial disclosures with the Task Force on Climate-Rleated Financial Disclosures, for example, and other nations are taking similar action.
That being said, formulating a comprehensive ESG strategy is by no means easy and may require significant business change and investment. But there are plenty of advantages waiting for those who are willing to put in the effort.
Business benefits of ESG strategy
Businesses that display clear commitments to sustainability and wellbeing attract values-driven consumers, the numbers of which are increasing rapidly. These consumers are also more likely to remain loyal in the long term.
This benefit is especially true if an ESG initiative can become a competitive advantage over other less forward-thinking industry players.
Strong ESG programs are also motivating investors who see such practices as indicative of sustainable growth and part of a modern approach to risk management.
And just like consumers, values-driven investors are more prepared to stick with their chosen businesses and build value gradually rather than flipping stock for short-term gain.
Talent recruitment and retention
There’s a clear pattern here – today’s consumers are also today’s investors and workers. Young people who care about the businesses they support also care about who they work for. Those who feel closely aligned with their employer are more likely to champion their brand and drive increased productivity in the name of public interest.
Displaying transparency and proactivity around ESG issues can also alleviate regulatory and societal pressures. This could mean winning government support and subsidies as well as avoiding the scrutiny and wrath of activists, benefitting a brand’s public image and resource distribution.
Does your business have a clear ESG strategy? The environmental and societal benefits of ESG initiatives have long been clear. But now the business advantages are becoming more apparent, those who fail to demonstrate their credentials risk being left behind for good.