Why more business are waking up to the importance of ESG

Environmental, Social, and Governance (ESG) factors have become increasingly important for businesses globally. It's rapidly evolving from something that businesses choose to develop to something that's often essential in the decision making process. It's also something I'm passionate about driving forward myself.

There are several key reasons why ESG is becoming more important for businesses and the benefits of adopting ESG practices:

1. Meeting 'Stakeholder' Expectations (Combining Environmental, Social and Governance)

ESG considerations are critical for meeting the expectations of stakeholders. In this context stakeholders can include anyone ranging from customers, investors, employees, as well as regulators.

• Customers are becoming increasingly conscious of the environmental and social impacts of the products and services they purchase and are starting to make more decisions such as supplier selection and even solution designs, based on these factors.
• Investors are interested in investing in companies that prioritize sustainability and social responsibility. If it's valuable to customers, its also of value to investors
• Regulators are imposing stricter regulations on businesses to address environmental and social challenges. As time goes on, some of the currently optional initiatives companies follow in the ESG space will no doubt become mandatory via regulation

Companies that do not prioritise ESG early risk losing the trust of their stakeholders, which can result in reputational damage and financial losses or losing pace with competition.

2. Improving Financial Performance (Environmental)

This is currently the most overlooked aspect of ESG - it's still seen by many as a 'cost' with ROI mostly achieved through marketing and commercial activities as a result.

However, ESG considerations can also more directly improve a company's financial performance.

Firstly, Studies have shown that companies that prioritize ESG factors tend to outperform their peers over the long term.

For example, companies that focus on reducing their carbon footprint and improving their energy efficiency may benefit from lower energy costs and increased operational efficiency. By prioritizing ESG factors, companies can enhance their competitiveness and create long-term value for their stakeholders.

It's also possible to deliver both growth and cost savings by implementing ESG related initiatives such as rolling out an Environmental Management System (EMS).

Studies have shown its possible to deliver savings via efficiencies as part of this area (although that's rarely the primary aim)

Source: https://www.british-assessment.co.uk/link-between-ems-growth/

3. Helping to Mitigate Risks (Governance)

ESG considerations can help businesses identify and mitigate risks. Companies that fail to consider environmental and social risks may eventually face legal and financial liabilities, as well as damage to their reputation.

Obvious examples are, companies that pollute the environment or violate human rights may face lawsuits and regulatory fines and the regulations and magnitude of fines around these are increasing.

Companies that operate in areas with high political instability or corruption may face legal and financial risks. By identifying and addressing ESG risks, companies can reduce their exposure to these risks and enhance their long-term sustainability.

4. Attracting and Retaining Talent (Environmental & Social)

ESG considerations can also help businesses attract and retain talent. Employees are increasingly interested in working for companies that prioritize sustainability and social responsibility.

Companies that invest in their employees' well-being and offer opportunities for personal and professional growth are more likely to attract and retain top talent. By prioritizing ESG factors, companies can create a positive workplace culture that fosters employee engagement and retention.

So it's clear that ESG considerations are becoming increasingly important for businesses around the world. By incorporating ESG factors into their strategies and decision-making processes, companies can meet stakeholder expectations, mitigate risks, improve their financial performance, and attract and retain talent.

As the importance of sustainability and social responsibility continues to grow, companies that prioritize ESG factors will be better positioned to create long-term value and deal with the changes and evolution that we will no doubt continue to see in this space.