“Both practically and morally, corporate leaders can no longer sit on the side-lines of major societal shifts or treat human and planetary issues as ‘someone else’s problem’. For their own good, companies must play an active role in solving our biggest shared challenges.” Paul Polman, Former CEO, Unilever
Due to multiple external factors not just environmental, but also political, economic, social, and scientific, the issue of Environmental, Social and Governance (ESG) and the call to action, has become an increasingly global business priority, some would say an intrinsic imperative.
Its integration - or lack of - into a business’s strategy can have a significant effect on reputation, growth, and financial standing. Today, poor awareness, posturing, or a failure to recognise its importance as it relates to responsibility is no longer deemed acceptable and is indeed seen as a critical risk.
It is because of this and the growing expectation from investors, regulators, employees, and the wider community for businesses to manage the associated risks and opportunities, that specialist roles like those in sustainability are in demand, as outlined in recent surveys such as that by Deloitte.
Engaging professional expertise and knowledge to identify and define what ESG means to an organisation can help to achieve cultural change and workplace integration, cohesively helping to move the focus forward with the appropriate processes and best practice in place. Alongside Board and SMT communications; governance; and leadership on the strategy, impact, and benefits ESG brings, it aligns the entire organisation behind the issue and the business purpose.
As a major shift for many, it is vital to establish a clear vision outlining business-wide commitments and priorities from the outset, one built-in at every level not just at the top but operationally, at day-to-day from finance and IT to operations and sales. All departments must be part of the conversation, especially those which are cross-functional and interdependent where decisions and performance impact each other.
Moving from an internal to an external focus, whilst most businesses are currently not required to disclose ESG statistics, ensuring effective governance with set targets, clarity around ESG activities and regular transparent reporting of measurable results can significantly impact and indeed transform long-term business growth and performance across a variety of competitive areas:
Increased investment - Investors are increasingly analysing the ESG objectives and values of a business prior to investing. This is demonstrated by ESG-oriented investing experiencing a meteoric rise as outlined by McKinsey and Company
Customer growth and retention - Knowledgeable customers across all age groups want to purchase ethically sourced and sustainable products, and avoid those businesses with a negative environmental impact
Attract and retaining top talent - High-performing and environmentally conscientious employees are increasingly motivated and influenced by like-minded organisations with proactive and demonstratable ESG commitments and strategies
Improving supply chain - Supply chain due diligence and mandatory reporting are being strengthened with proposed initiatives such as The Corporate Sustainability Due Diligence Directive (CSDDD). Such action highlights the importance placed on a transparent ESG-focused chain by suppliers, contractors, and other third-parties
Ensure compliance – Greater pressure is being put on organisations to operate in a compliant and socially responsibly way with reporting combining both mandatory and voluntary options
With increased calls for mandatory reporting, tighter legislation, and market transparency directives and initiatives such as The Taskforce on Climate-related Financial Disclosure (TCFD) and The EU’s Corporate Social Responsibility Directive (CSRD) there is going to be a far greater necessity for businesses to ensure a proactive approach. One in which they prepare for and oversee any future ESG issues which may, under public and media scrutiny, damage credibility, performance, and reputation.
Whilst many businesses have embarked on their commitment to ESG there is still a high number who have not or who view it negatively against other priorities. A 2022 KPMG survey of CEO’s found that 50% paused or were reconsidering their efforts and 34% had already done so. This was in part due to a shift in focus onto other areas due to fears around a looming recession along with a perceived lack of budget for investment both into addressing ESG and monitoring progress.
For these businesses, the stakes could be high. Failure to view ESG as a long-term investment with the ability to offer a multitude of far-reaching benefits could affect not only reputation and employee and customer relationships but future profits, regulatory exposure, and growth.