Did you know that companies that prioritise Environment, Social, and Governance (ESG) are often more attractive to investors and have a higher likelihood of long-term success?
In fact, a recent study found that companies with strong ESG performance had an average return on equity of 10.1%, compared to 7.4% for those with weak ESG performance. But what exactly is ESG, and why is it so important for companies to implement?
What is ESG?
ESG stands for Environment, Social, and Governance. It’s a framework used to evaluate a company’s performance and impact on the environment, society, and governance.
The environment aspect of ESG focuses on how a company manages its impact on the natural world, including things like its:
- Use of natural resources
- Carbon footprint
- Waste management
- Resilience against the impacts of climate change
The social aspect of ESG evaluates how a company interacts with society, including things like its:
- Relationship with customers
- Relationship with employees
- Relationship with the communities in which it operates
Finally, the governance aspect of ESG looks at how a company is managed and governed, including things like its:
- Leadership structure
- Shareholder rights
- Board composition and diversity
- Business ethics
“ESG extends the notion of sustainability beyond purely environmental concerns.” – Whitney Teluk, ESG manager at Hub Australia
Why is ESG so important?
It’s becoming increasingly clear that consumers, investors, and employees are demanding that companies take responsibility for their impact on the environment and society.
“Companies that prioritise ESG factors are more likely to contribute to a sustainable and equitable future for all stakeholders, not just financial returns for shareholders.” – Whitney Teluk, ESG manager at Hub Australia
Firstly, implementing an ESG strategy can help you attract and retain customers, investors, and employees who share these values.
Secondly, it can also help you mitigate risk. Companies that are not proactive in addressing ESG issues could face legal and financial penalties, as well as damage their reputation and the way their brand is perceived by consumers.
Finally, it can help you with performance. By addressing ESG, you can potentially operate more efficiently and reduce your costs, resulting in an increase in revenue. By having a strong ESG performance, you could be better positioned to take advantage of emerging opportunities in the ‘green’ space.
How do I implement ESG?
Implementing an ESG strategy requires a comprehensive approach that takes into account your company’s entire value chain. Here are a few steps that you can take to implement an ESG strategy:
1. Conduct an audit
The first step in implementing an ESG strategy is to conduct an ESG audit. This involves assessing your current impact on the environment, society, and governance. The audit should identify areas where you’re performing well and areas where improvement is needed.
2. Set goals and targets
Once your ESG audit is complete, move on to setting goals and targets that improve your ESG performance. These goals and targets should be specific, measurable, and achievable.
3. Develop an action plan
Create an achievable action plan for hitting your ESG goals and targets. This plan should include specific initiatives that you will undertake to improve your ESG performance.
4. Monitor and report
Monitor your progress towards achieving your ESG goals and targets, and report on your performance to stakeholders. This reporting should be transparent and should include both successes and challenges.
How do I include ESG in my business strategy?
To fully integrate ESG into your business strategy, consider the following steps:
1. Identify risks and opportunities
First, identify any ESG risks and opportunities that are most relevant to your business. For example, a company in the recruitment industry may identify reassessing its relationship with potential candidates as a key opportunity to improve its ESG performance. Or, you might want to reconsider the office space you work from as this can have a huge effect on the environment aspect of ESG.
2. Integrate ESG into decision making
You need to integrate ESG considerations into all decision-making processes, including strategic planning, capital allocation, and risk management.
3. Communicate ESG performance
Communicate their ESG performance to stakeholders in a transparent and clear manner. This can include publishing ESG reports and disclosing relevant ESG data to investors.
4. Monitor and evaluate ESG performance
Regularly monitor and evaluate your ESG performance to ensure that you are making progress towards your goals. This can involve conducting regular ESG audits and engaging with stakeholders to understand their feedback.