The context of modern business activity has migrated from solely meeting financial goals to making large scale, long term positive impacts through business activities. ESG principles incorporate;
- Environmental Criteria: This accounts for the energy consumption of an organization and the waste it produces. The resources an organization uses need to account for consequences of consumption on the surrounding environment.
- Social Criteria: The relationship an organization has socially affects its reputation and the ability to build strong relationships with both people and institutions in the areas business activities are conducted in. This includes relationships internally with labour factoring in diversity and inclusion while having a positive impact on the community within which an organization operates.
- Governance: Internally an organization needs to have sound practices, controls and procedures used for effective and fair decision making while maintaining compliance with both the government and external stakeholders. As a legal entity, businesses must uphold governance policies to conduct business activities.
ESG principles have become an important factor for organizations to incorporate. Global sustainability investments are currently valued at over USD $30 trillion, up 68% since 2014. The magnitude of this investment portfolio indicates ESG factors are here to stay and less of a trend. The reason? Incorporating ESG principles has proved to be beneficial to organizations looking to run long term, sustainable businesses with positive impacts on equity returns.
Strong ESG propositions offer a strong link to better value creation. ESG factors offer a positive influence by;
- Facilitating only top of the line, sustainable growth
When organizations factor in ESG propositions, they are in a better position to attract B2B and B2C clientele with their sustainably sourced and produced products. These organizations are also more likely to achieve access to better resources aided by the community and strongly positive relationships with their government.
Organizations that do not factor in ESG principles in the age of consumer consciousness are likely to be associated with unsafe products and poor internal practices around human rights and their supply chain discouraging purchasing and affecting a business’s bottom line.
- Reducing long term costs
ESG compliant organizations look at their internal processes and streamline down to not only higher quality resources but also lower their overheads with reduced energy consumption and water intake.
When businesses do not account for the quality or side effects of the resources used over their business process, they tend to generate large amounts of unnecessary waste while corresponding waste disposal costs.
- Minimizing the likelihood of regulatory or legal intervention
Governance is the third cornerstone of ESG principles. When businesses maintain ethical governance and compliance they are more likely to see stronger strategic freedom fueled through deregulation while earning subsidies and support.
Non compliantNon-compliant organizations are likely to have an impact on their advertising and point of sales in the form of restrictions minimizing opportunities to bring in new clients. Additionally, fines, penalties, and enforcement actions would become more common than anticipated.
- Increasing employee productivity
ESG compliant organizations craft better work environments for their employees. The social factors help minimize disturbances like lax safety protocols and inequalities. Creating a comfortable space for employees to conduct their activities not only boosts motivation but encourages talent to join the organization propelled by stronger social credibility.
The social stigma that follows non-ESG compliant organizations not only restricts the talent pool willing to join the organization but is likely to push existing employees away.
- Optimizing investment and capital expenditure
A critical component of better long term decision making is ensuring sound investments are made offering strong returns in the future. Accounting for ESG factors allows organizations to allocate capital towards more sustainable manufacturing practices and equipment. Better long term investments help avoid future concerns around environmental issues or unethical business practices that could disrupt business activities moving forward.
ESG principles are an influential factor for long term business success. These principles are gaining momentum as mission critical to strong strategic decision making. For organizations unsure of how to best incorporate these principles or where to start, looking to ESG consulting organizations offering ESG advisory services allows for professional guidance for the best and most practical methods to introduce to a business.