Sustainability is a movement gaining significant momentum worldwide. Consumers and businesses alike are taking initiatives to ensure their activities are not causing a negative impact on the environment in any form. While sustainability is generically clubbed with better practices towards the environment, today’s definition accounts for both impact on society and governing bodies.
ESG or Environmental, Social and Governance impact understanding may seem like a confusing activity. However, understanding the investment opportunities that lie within these three segments can prove extremely lucrative for any organization. Introducing ESG consulting into an organization helps the industry, consumers and other stakeholders recognize the business as socially responsible and a better investment opportunity than their competitors.
What Is ESG
ESG or Environmental, Social and Governance are three categories firmly considered by socially ethical and responsible investors. These investors have understood the value of accounting for social, environmental and governance-related factors in order to present the best investment opportunities or detect potential risks. Factors being assessed include;
- Energy efficiency
- Greenhouse gas emissions
- Staff turnover
- Employee morale and corporate culture
- Qualifications, certifications and training needed
- Overall workforce maturity
- Rate of Absenteeism
- Possible litigation risks
Ensuring an investment is positively contributing to or minimizing the negative impact on the environment. The social fabric within the organization and compliance rules and regulations help identify the opportunity as lucrative not just in the short term but also in the long run.
5 Benefits of Introducing ESG
The ESG system is not just great on paper; introducing ESG into any organization as an assessment factor before any investment or project undertaking can offer a number of benefits. The main five to consider are;
- Sustainable Higher-Tier Growth
Comprehensive and concrete ESG proposals help organizations venture into new markets while expanding their existing role within their market. Governing authorities account for the overall impact a business is likely to have on surrounding factors. These authorities are more likely to offer access, approvals and licenses to move business activities forward if their ongoing activities exercise consideration.
Businesses that have already incorporated better ethical practices around sustainability are likely to pull in more B2B and B2C customers. Additionally, these businesses form stronger relationships with the community and government, allowing them access to better resources, at times, even at subsidized rates.
- Lowered Overall Costs
The ESG model is great at lowering all round expenditure. More often than not, a company will experience resource wastage. This can take the form of unnecessary water/electricity use, improper handling of raw materials or even large scale but cost-effective resource substitution. Research conducted by McKinsey has shown that 60% of operating profits are affected by rising operational costs, including real costs of water, carbon and raw materials.
When organizations are able to tackle production from a granular level, they become more aware of the impact that occurs not only externally but internally, especially on the environment. Corporations that have made switches to paperless offices, sustainable electricity and water practices, recycling and other environmentally friendly practices have seen a positive impact on reducing long term costs. While the initial migration may be a little cost/investment heavy, the reduction in long term costs translates to better internal practices and a less impacted environment.
- A Reduced Need for Regulatory or Legal Intervention
Accounting for government regulations and compliance allows the business to strategize freely. Major corporations, in particular, feel they have the ability to dictate how they can operate based on their high revenue generation and relative tax complacency. These businesses are less likely to garner government support in the long run and have frequent encounters with regulatory bodies, increasing their expenditure on legal fees and fines.
The ESG model offers businesses an opportunity to sidestep legal battles at any scale by incorporating pre-emptive measures into their business strategies. Undertaking the legal responsibility without a prompt is government-mandated but rarely exercised in entirety. Businesses that use the ESG model are less likely to face negative government interaction and may also gain support from the government across its endeavours.
- Positive impacts On Productivity
Staying mindful of an organization’s corporate culture can help retain quality employees, increase overall productivity and create a strong sense of motivation and purpose. Before an employee joins an organization, they are likely to research working conditions and the overall experience. Initiatives like incentive programs, benefits, solid working conditions and attention paid to employees needs while conducting business activities can offer a solid rise in employee morale and stronger job satisfaction.
Incorporating the ESG model provides employees with a higher sense of purpose that extends beyond profit generation for an organization. The feeling of self-fulfilment offered by completing an activity helps employees work harder, better, faster and stronger. Flexible and diverse corporate culture can have a strongly positive impact on both existing and future employees.
- Optimization of Assets and Investments
Strong ESG propositions offer businesses an opportunity to invest better. Allocating resources towards sustainable ventures ensures the business is not simply throwing money into a project for meagre profit generation. Investment into areas like renewable energy and waste reduction can prove to be more beneficial than single-faceted endeavours.
When businesses channel their money into sustainable practices, it has a long term positive impact on their balance sheets. Understanding laws around single-use plastic or utilizing diesel-fueled machinery and not incorporating them into existing practices will prove costly in the long run and likely be the cause of a business lagging behind competitors. While the initial investment towards sustainability may be heavy, creating a counter-intuitive response, moving forward, these investments are likely to set industry standards and keep businesses ahead of the curve while their competitors are still figuring out step one.
Introducing the ESG system offers a number of benefits not only to the organization but also to all stakeholders involved. Understanding the impact an undertaking or investment opportunity has on the environment, social fabric within an organization and on maintaining compliance ensures organizations are moving activities along sustainably and exercising maximum consideration. Success in today’s corporate world has been redefined. While profitability and revenue generation are great, oftentimes, they come at the expense of factors that are seemingly unimportant to consider. Figures are figures. In today’s environment, being able to minimize negative impact and, in some situations, offer a positive addition to surrounding factors are truly what makes a business successful.
The right professional guidance in this situation can truly positively highlight a business from amongst its competitors and help establish itself as a front runner within its industry.