Over the last few years, businesses started investing responsibly. Earlier, the organizations focused on social or environmental aspects that fell under the purview of Corporate Social Responsibility (CSR). However, today most organizations are more conscious of ensuring aspects like human rights, anti-corruption, sustainable manufacturing, and fair labor. These aspects receive equal focus in their operations and across their value chains.
Moreover, businesses realize that the ‘either or’ approach is no longer viable, and action towards ESG (Environmental, social, and governance) as a whole requires riven through a synergistic approach across your business’ value chain and in communities. To address a diverse set of ESG-related issues, organizations must track the right KPIs, incentivize management using the metrics and communicate performance improvements to different stakeholders.
ESG
ESG (Environmental, Social, and Governance) is a set of frameworks used by investors that assess responsible investment and an organization’s ability to ensure long-term value. Environmental refers to your organization’s environmental impact, including natural resources, pollution, waste, and climate change. Social refers to the social impact created by your organization. It includes labor management, health, and safety, human capital, and community. Governance addresses your organization’s leadership practices and includes governance, risk management, and stakeholder engagement.
How does ESG create your organization’s value?
A strong ESG position creates long-term value. It creates multiple competitive advantages for your enterprise, including a more stable investor base, lower capex and better access to financing, improved employee engagement, and customer loyalty.
Here are some ways in which ESG enhances your organization’s value.
- Achieve top line growth!
When your organization follows a strong ESG proposition, it attracts customers with a more sustainable offering, as these practices drive consumer preferences. Most consumers are willing to pay more for green products with the same performance standards as non-green ones.
- Reduces energy and water consumption
Earlier, organizations believed that behaving in an environmentally conscious fashion was more expensive. However, the notion has become outdated. Organizations focusing on ESG spend less on energy and other resources by reducing their usage and boosting efficiency. It might mean moving to an all-electric fleet or improving infrastructure to reduce water use.
- Reduces cost
An organization executing ESG practices effectively combats the rising operational costs, enhancing long-term profits. When your company strategies its sustainability practices, it enhances its performance.
- Boosts employee engagement and productivity
Besides your investors, your employees also care about your organization’s ESG rating. Companies taking a responsible approach to socially important matters, such as racial justice, environmental protection, and fair governance, attract new talent and possess the best talent retention.
- Long-term investment returns
When organizations allocate their capital to more promising and sustainable opportunities, they can expect increased investment returns. ESG initiatives help companies avert investments that might not pay off due to long-term environmental issues. Institutional investors are showing an increased interest in companies with values. Over the last few years, several mutual fund organizations and brokerage firms offered ESG-related funds to companies prioritizing brokerage aspects and reporting on their consecutive annual performances.
Conclusion
Organizations are increasing including ESG within their strategy and reporting their efforts on the ESG front, demonstrating a better understanding of the market, trends, risks, and opportunities brought by ESG. Organizational leaders, analysts, and investors raising awareness about their impact on society and considering related risk-performance opportunities help build better resilience and long-term value. ESG factors form an integral part of assessing the quality of a company, covering a wide range of issues that traditionally were not parts of financial analysis. As a leading digital talent partner in Asia Pacific Region, Talent Intellect supports companies in their quest to move from theory to practical implementation of ESG principles and sustainability. We help organizations develop a specific plan strategy and implement individual initiatives for a sustainable profitable business.
