Why ESG: Why Now?

ESG considerations are transforming the thinking in corporate boardrooms, transcending traditional operational and financial metrics that have historically defined firm performance. ESG is no longer about following certain practices or compliance with a set of principles – it is about how firms conduct their business and make money.? The ESG dimensions encompass a broad set of themes: environmental practices, which includes responsible use of energy and resources all the way until the end-of-life, social responsibilities towards the communities and its people, where the firms operate, and governance structures relating to a company’s leadership, internal controls, practices and procedures.

ESG agendas today are not driven only by society and regulatory pressures, but by financial markets as well.? Investors are increasingly looking to companies with strong ESG credentials, recognizing that commitment to sustainable practices correlates with better risk management and long-term profitability. This trend is reflected in the increasing pressure by investors on firms to demonstrate financial returns while embedding ESG considerations in their strategy, operations, culture, and all decision-making.? Several studies have shown a direct correlation between valuation multiples and shareholder returns, with performance on ESG dimensions.? Moreover, top ESG performers are also more successful in attracting and retaining talent, especially among the younger generation.

The role of ESG is core to the business model of the renewable energy sector.? Supplying RE allows companies to comply with environmental criteria, set new standards in sustainability, while improving their financial performance due to the cost advantage of renewables over conventional forms of energy.? A key requirement for renewable energy companies today is to be positive stewards of the environment where they set up their operations and devise responsible end-of-life solutions for the impending waste that will be generated from used solar modules and decommissioned wind turbines.? Moreover, given the locations of most renewable energy assets in remote and usually rural locations, there is an obligation for responsible RE companies to support the communities and people, not just by providing employment, but enabling the creation of necessary infrastructure to allow the communities to thrive.? Regulatory compliance is often the starting point for many companies in their journey towards improved governance. However, leaders in the renewable energy sector are taking strides beyond mere compliance. They view regulations as a baseline and aim to exceed these standards, thereby establishing themselves as pioneers in their industry, by proactively adapting to legislative changes and adopting global best practices in business processes, internal controls, and stakeholder management. Companies that will be successful are the ones who can explicitly integrate ESG into their DNA.? This is a journey which takes time and effort.? As a first step, companies can start to introduce key ESG principles into the company across all business and support functions.? The second step is to grow and accelerate the adoption of these principles, which allows them to be integrated into the day-to-day business processes of the company.? The final step is to build the strategy and culture of the company on ESG so as to allow these principles to be integrated into the company DNA.

Cultivating a culture of sustainability is critical for its sustainability and requires fostering a mindset that prioritizes sustainable practices at every level of the organization. This involves educating employees about sustainability, embedding eco-friendly practices into daily operations, and incentivizing initiatives that promote environmental stewardship.? This culture can best be sustained by living these principles through the organization every day – employees will see beyond mere “greenwashing” initiatives and empty slogans. Finally, transparent ESG reporting is vital in building and maintaining trust among stakeholders. Companies that openly share their sustainability efforts, challenges, and plans for improvement are seen as responsible and forward-thinking. This transparency is not just about showcasing successes but also about an honest assessment and a commitment to continuous progress. In a nutshell, the adoption of ESG criteria is more than a trend; it is a fundamental shift in how businesses operate and envision their future. Companies, especially in the renewable energy sector, that embrace ESG principles, are setting themselves apart as responsible and innovative leaders. By fostering a sustainability culture, ensuring transparent reporting, and exceeding regulatory compliance, these corporations are contributing to a healthier planet and securing their position in an increasingly conscientious market. This movement toward ESG integration is a testament to the growing recognition of the intrinsic value of sustainability in ensuring the longevity and resilience of businesses in a dynamic global environment.