A necessity, not a choice
Long before the pandemic hit, our world faced numerous challenges. From climate concerns to systemic injustice and inequality, governments and businesses around the globe have faced a moment of social reckoning not seen for a generation.
And right now, businesses are under more scrutiny than ever when it comes to sustainability.
ESG – Environmental Social Governance – focuses on the environmental, social and governance factors alongside financial components in the investment decision-making process. It is also a process by which to assess how companies perform/score on each of the factors, determining whether it is a viable investment; any issues surrounding ESG can have the potential to drastically damage share prices.
No longer is ESG considered a niche area, based solely on personal preferences and beliefs; by becoming more aware of your businesses strategies you are not only taking responsibility to help to protect the planet, but increasing investor attraction. This desire to invest sustainably is ever evolving and increasing - at a rapid rate. Many investors will now take the time to look unpick a business’s ESG plans, current and in the distant future, during the course of the investment process.
Here are just a few of the key considerations to be aware of when looking to strengthen business ESG for improved business results:
1. There's a new way of running things
Throughout the pandemic, we’ve learned a lot about the ways in which we live our personal and professional lives. From uncovering the reductions we can make to our carbon footprint and industrial activity, to recognising the importance of wellbeing support for employees. As the world recovers from COVID-19, investors will not lose sight of this - the trend of ESG related issues will only become more central to investing.
The effects of something so far out of human control has highlighted how greatly we are ruled by the confounding variables of nature. Now that we’ve seen first-hand how the world can operate in ways we once never thought possible, whilst reducing climate risk and contributing to a more sustainable future, shareholders will expect to see this awareness going forward.
With the recent hosting of the UN Climate Change Conference in UN (COP26) being directed with the angle that we now have the opportunity to “build back better, and greener” following the pandemic, there’s an expectation that the most credible businesses to invest in will be integrating a greener framework into everyday business procedures.
2. Create lower potential risks with increased resilience
Regardless of business size, location or industry, ESG related issues have the potential to cause great damage to internal operations – therefore profits can be jeopardised too.
By ensuring your ESG strategy is water-tight, opportunities for disturbances to occur are limited, meaning reduced investor risk and increased revenue.
Many “traditional” institutional investors are now in fact employing ESG strategies because they believe it will help them understand the risks of the firms in which they invest. If investors and lenders can see that a company is run well, and is managing risks that can impact resilience, they have confidence that the loan is at a lower risk.
It is believed that a well thought-out ESG strategy depicts robust management; a strong approach proves you have the ability to plan ahead and presents a more long-term business potential.
3. Neglecting your ESG stategy can leave you falling behind
As it becomes increasingly likely that following new ESG guidelines will become an obligatory and law-abiding process, showcasing an educated approach, as well as a history of mitigating these risks within the very foundations of the business, will set you aside from the competition.
Consumers and investors now look to purchase from or invest in businesses that not only provide the goods, services or returns that they desire, but also align with their views, whether that be environmental, social or governance related. The notion that to invest ethically or sustainably comes at the cost of profits is consistently being debunked by research — which points to enhanced returns. Recent figures from the Investment Association show that investors put over £1 billion a month on average into responsible investment.
As governments strive to achieve environmental targets, and the choice widens for customers on socially-conscious products and services – ESG will progressively become more critical for survival, and not just for investment.
What can employers do?
Proactive employers who want to reshape their workforce and develop a more sustainable business model have an opportunity to look at their employment framework and labour relations agenda. Some of the key issues they can consider include: producing an inclusion and diversity model to enable recruitment of more diverse talent; shape employee terms and benefits to incentivise sustainability, lower carbon emissions and inclusivity and diversity and place employee welfare and I&D at the heart of procurement decisions.
Businesses that analyse how ESG principles affect their workforce, and take steps to anticipate and control associated risks, will be better placed to improve profitability and reputation in the long run.
Read more about the latest ESG trends in our recent whitepaper.