ESG strategy is a recently developed concept with the aim of developing strategies that will lessen the negative impact of industries on the environment and contribute to society as a whole. It has created quite a stir not only among environmentalists but also among industrialists who are looking for ways to build a sustainable business. This strategy is based on the idea of building investment policies that are environmentally safe and socially responsible.
ESG framework helps stakeholders take investment decisions formulated on how an organization manages risks and opportunities concerned around environmental, social, and governance specifications. While the ESG strategy was making its way slowly through organizational policies, after the Covid pandemic, it has become a mandate. It is seen as a way to shield a business from future risks.
In this article, we will explore the ideas behind the term ESG, the importance of the ESG business model in the current global status, and its significance in the growth of a business.
What is ESG?
ESG stands for Environment, Social, and Governance. These are the three factors that influence the robustness of a business. Let us know about each factor in detail.
The environmental factor in ESG is one of the primary concerns of stakeholders and investors in the post-Covid era. The way a company uses and plans to use its resources in the future has far-reaching consequences on the planet.
Thus, adopting an ESG plan right in the initial stage of a business process will help in building a credible and sustainable business in the long run. It may include the reduction of carbon footprint, waste product management, and other activities that have an influence over the global environment.
The fact that a company’s growth and sustainability depend largely on the relationship management with its stakeholders, brings forth the social factor. It is a fundamental part of the ESG framework that decides policies related to labor, diversity, inclusivity, and other organizational policies.
Corporate ESG strategy related to governance refers to the internal practices, and regulations that ensure effective functioning and legal compliance of the organization. This facilitates relationship management with stakeholders, attracting talent, and cost reduction.
Corporate governance may lead to better loan conditions or reduced capital costs through government support, subsidies, and getting control of regulatory pressure.
Why ESG is important?
ESG is seen as a proactive movement to ensure maximum well-being for stakeholders. It is the comprehensive framework that secures environmental and social impact along with active compliance with government structures. Let us understand the importance of each factor of the ESG framework.
Environment: While the study says that 85% of the new-age investors are interested in sustainable practices, more and more consumers are coming up who are focused on consuming and promoting eco-friendly products. Following environmental policies according to ESG strategy, allows better access to varied resources, reduces energy and water usage, and thus reduces overall operational costs. It attracts more customers.
Social: It aids in accounting for more social credibility, acquiring new talent, boosting individual employee productivity, and building a loyal community.
Governance: Sustainable practices lead to support from government institutions, deriving subsidies, and overcoming the hurdles related to rules and regulations. This leads to better investor relations along with lowered capital costs and better loan circumstances.
Failure to report and handle these ESG-related concerns can be a risky business practice that may result in losing investors. Modern problems for monitoring and managing a company’s sustainability performance need modern solutions. Businesses are now considering reporting on ESG to be a type of risk management that addresses commercial, sustainability, and social challenges.
Ethos Enterprise provides adaptable choices for various sustainability and ESG reporting needs, thanks to sophisticated stakeholder interaction capabilities, a quantitative materiality evaluation, data management and monitoring tools.
Significance of ESG policies on businesses
Adopting the ESG business model means that the corporate strategy is following the three pillars of ESG strategy – environment, social, and governance. This means that the company will follow regulations that will contribute to reducing carbon footprints, managing waste, and building a diverse and inclusive workforce.
Here are some of the benefits that businesses can derive from an ESG program.
1. Cost reduction and top-line growth
With a robust ESG approach, a company can step into new markets and also expand in the existing ones. Efficiency and cost reduction are the primary products of the ESG framework. ESG approach decreases the number of resources required in business operations. Minimum usage of resources leads to lowered costs, and higher profits, and also aids in better decision-making.
For example, companies can reduce costs by reducing waste and thus reducing the expense behind waste management and legal compliance. Environment-friendly packaging over plastic packets reduces waste and the costs behind compliance based on various geographical locations.
Also, eco-friendly manufacturing and production processes involve energy-efficient equipment bringing down per capita expenditures. Further, lowered operational costs, competitive advantage, less risk exposure, and productivity gains are the benefits of ESG plan implementation.
2. Attract new opportunities
Adopting ESG policies might help your business to attract new customers, investors, and lenders. If your business is committed to being a socially responsible organization, then your trade is more likely to attract new leads who are in alignment with your vision. This will create potential collaborators and partners who might share your interests.
Investors would like to know if your company is concerned about reducing carbon emissions, is working towards the betterment of work conditions, and whether you prefer transparency in your supply chain. You will gain appreciation from new customers, investors, and lenders if you have implemented ESG policies.
3. Risk management and improved resilience
ESG standards minimize risks and maximize efficiency. However, concerns linger around the fact that businesses are supposed to survive the current scenario of rapid changes and fast-growing technology. Due to changes in climatic conditions, the world is facing scarcity of natural resources, scarcity of water, food insecurities, and extreme weather occurrence.
ESG strategy makes a company resilient to such adverse conditions by anticipating problems beforehand, investing for future requirements, enhancing the ability to adapt, working across geographical locations to reach new markets, and developing a work culture that is flexible to changes.
ESG standards address the issues of product designs, distribution channels, sourcing policies, and workforce administration.
4. Increased employee loyalty and better talent acquisition
When employees find a better work environment, it not only improves productivity but also ensures better employee loyalty. Creating an inclusive atmosphere and empowering employees to voice up their issues, at all level of the hierarchy, boosts employee morale and thus account for loyalty. If employees feel appreciated, respected, and included, they are much happier in their workspace and thus contribute largely to building a sustainable business.
When your employees are more productive and loyal, you can expect to attract credible talent to your organization. Corporate ESG strategy ensures a better work environment for employees belonging to each unit of the organization.
5. Image building and higher brand value
It is the psychology of present-day customers that they give more credit to the brands that are more concerned about the green movement and can be labeled as socially responsible organizations. Various evidence shows that the companies that follow sustainable practices are considered more trustworthy and commending over those who are ignorant of ESG factors.
Today, businesses do not necessarily revolve around the end products. They must also follow sustainable practices to become a credible business. Applying ESG standards to a business help in maintaining a positive image and contributes to building trust among consumers.
It builds an affirmative brand value if your business is adhering to ESG values and living up to the customer expectations of sustainable practices. This also gives your company a competitive advantage in the industry when others are struggling to put up a stable profit margin.
Taking up an ESG strategy might be expensive and time-consuming, but it is rewarding in terms of sustainability for a business. ESG investing is done to evaluate investments developed on corporate policies and to encourage organizations to operate on more socially responsible steps. Many investment firms now employ ESG programs and thus prevent companies to engage in unethical practices having a poor influence on the environment.
Churning out the correct ESG strategy and establishing a sustainable business is not an easy job. For this purpose, expert ESG consultants like Ethos Sustainability Solutions can be the prerequisite for your business.
As ESG consultants, we assist companies in identifying potential for further investments as well as divesting from those that are not socially responsible. Connect with us and get the best ESG solutions to take your business to new heights.