Unlocking Enterprise Value: The Compelling Business Case for Investing in ESG Amidst Global Challenges and Emerging Opportunities

Globally, business leaders are challenged with growing inflation, increasing Government compliance, and changing macro and micro economic conditions. Here in Australia, we continue to experience rising interest rates, increasing Consumer Price Index (CPI) and many businesses are cost cutting ahead of a potential recession or lifting their prices.

Interest in Environmental, Social & Governance #ESG has dramatically increased over time. Google Trends ‘Interest Over Time’ numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular. A score of 0 means there was not enough data for this term. In 2004 ESG as a term had a value of 16 and as at today its value is 100.

Over 90 percent of executives surveyed in 2022 consider sustainability and ESG either important or very important to driving enterprise value however roughly 50% of boards still don't understand ESG.?

The business case for investing in ESG is strong as it impacts?the value chain of organisations across industry sectors.?It is worth considering the investment in, adoption and implementation of ESG practices, particularly as a value creation strategy.

In the below sections I share the ‘Burning Platform of ESG’, the factors pertaining to business, the value creation opportunities and expected Return on Investment (ROI).

If you are considering putting forward a ‘Business Case’ to your Executive Management or Board for FY24 budget or investment in ESG then this information will be of great value to consider. ?

Significant factors pertaining to business.

Regulation: ESG helps reduce the risk of adverse government intervention. Likewise for government buyers ESG considerations are often included on tenders and require buyers to integrate ESG activities into their operations.?

Cost reduction: Sustainable programs helping to increase efficiency and reduce the overall cost of operations. This can come by way of lower energy consumption or switching to renewable alternatives and improved waste management practices, circular economy and carbon emission reductions.?

Staff, business and community engagement: ESG provides organisations an opportunity to reinforce company values, increasing engagement and reducing the cost and lost skills burden of staff turnover. 71% of employees noting they would consider a decrease in pay to join an organisation that is aligned with their values. According to a comprehensive Macquarie University study, Millennials expect their employers to behave ethically and sustainably, with?nearly one in five willing to sacrifice up to 40% of their salary?to work for a responsible employer. Communities also expect more from business and seek community benefit from your operations.

Capital Investment: ESG attracts investment - Global sustainable investment now tops $30 trillion. Globally more than $1 trillion dollars has been invested into ESG investment funds in the past two years alone.?

ESG also protects investment - Over half of the world’s economy is dependent on natural capital. One fund manager estimated that more than 30 percent of their $300 billion USD portfolio is exposed to nature-related risks.

The top areas of benefit can be described as;

·?????Compliance & Risk

·?????Growth & Investment

·?????Staff, Business and Community Value Creation

Value Creation and Return on Investment in ESG.

Staff, Business & Community Engagement: Increase engagement; decrease turnover; reinforce company values. Millennials expect their employers to behave ethically and sustainably, with?nearly 1 in 5 willing to sacrifice more than?40% of their salary?to work for a responsible employer according to a Macquarie University study

Cost Reduction: lower energy consumption & improved waste management practices?

Social Licence to Operate: Considering a company’s social licence stakeholders has become a business imperative over the past couple of years following high profile violations both in Australia and overseas.

Enhanced Operational Efficiency: Skill development and capacity building; supply chain operational enhancement; productivity uplift.

Environmental resilience:?Over half of the world’s economy is dependent on natural capital. One fund manager estimated that more than 30 percent of their $300 billion USD portfolio is exposed to nature-related risks – source: PWC.?

Regulation: ESG helps reduce the risk of adverse government or legal intervention

Access to New Market Opportunities: More sustainable expressions of your products and services will likely open up new markets. Organisations driven by purpose demonstrating post compound annual growth rates of 9.85% compared to 2.4% for the S&P 500 overall

Top line growth: B2B and B2C opportunities through improved sustainable policies and practices; Upwards of 70 percent of consumers are willing to pay more an additional 5 percent for green products.

Capital Investment: Global sustainable investment now tops $30 trillion. Globally more than 1 trillion dollars has been invested into ESG investment funds in the past two years alone.

If you have any thoughts on ESG please add comments below.

Author

Geoff Gourley is a leading Global Social Innovator, Entrepreneur, Impact Investor and Director of ESG at Apricot Consulting, in 2017 acknowledged in the Top 100 Social Entrepreneurs & Innovators around the world. He has 30 years’ experience in design, property, construction, and all things Environmental, Social, Governance and Impact.

+61 428 317 387

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