The prevailing global pandemic has reinvented how businesses need to approach supply, demand and public perception. More organizations are paying attention to not only meeting corporate goals but giving back to the global community.
ESG or Environmental, Social and Governance criteria are gaining traction. These criteria cover;
– The environmental footprint left behind by an organization’s activities: This includes employing methods around sustainability and minimizing waste discharged. Companies are now being held accountable for negative consequences their practices have. Contribution to carbon emissions and climate change are being watched carefully.
– The impact social interactions the organization has: Businesses need to build healthy interactions with communities, institutions and people. The social aspect of ESG covers diversity and inclusion in terms of labor relations and introducing positive contributions to society as a whole.
– Adherence and compliance with internal, national and international practices, controls and procedures that govern overall business activity. Paying close attention to new laws and understanding the needs of external stakeholders avoids creating issues on a legal front and allows the business a bigger space to succeed.
ESG considerate organizations are not only better received within business environments but encourage millennials, especially to purchase their goods and services. Investors have also begun introducing ESG criteria into their assessments to understand whether the investment is likely to be a success in the long run.
Here are five ways ESG considerations are able to create value in a corporate context;
1) Top Line Growth
Organizations with strong ESG propositions are more likely to introduce new customers to their brand along with retaining existing ones.
With a larger spotlight on global catastrophes caused by negligence and development of today’s world, the conscious consumer is willing to pay more for products built and sourced ethically.
In turn this could bring companies acting out of capitalist interests only to a forefront including competitors that are not looking at ESG criteria.
In order to build the best version of a brand and widen reach, swapping out components for more eco-friendly alternatives, introducing a wide array of employees and policies while maintaining compliance with government regulations tells customers you care about the impact of activities on a
whole. This in turn encourages them to patronize your organization and contribute to the rise of more ethical business activities.
2) Reduced Costs
While the initial shift to new, more sustainable practices can be costly, long term benefits are reaped through new developed efficiencies. This in turn reflects in sales and profit margins after the new practices have been successfully implemented.
Switching to lower energy consuming practices and reducing water intake for example, limits waste containment bills and could even introduce lower cost, higher quality output and practices.
As mentioned earlier, customers are willing to pay more for products that are built and sourced with the environment, society and government in mind. The initial expenditure can easily be recovered in translatable costs that also offer comfort to the purchasing consumer.
Today’s conscious consumer is willing to invest in products rather than pay and use. Better materials and practices add to the longevity and quality of the same.
3) Minimize Legal Intervention
The government is less likely to assist organizations at times of need if they are negatively contributing to society on a whole.
Ignoring regulations around product ingredients, waste creation, encroachment, introducing illegal points of sales and neglecting social messages in advertising can result in legal fines and fees that paint a poor picture around the organization’s beliefs and practices.
At a later point when your business is looking to scale up or capitalize on government subsidies and/or support, organizations that are ESG compliant are looking at a stronger likelihood of achieving the assistance in comparison to their competitors.
In addition, consistently sitting at the receiving end of government fines and actions discourages clients from patronising the business. This in turn will reflect in poor long term sales and negative awareness within the market.
4) Productivity Uplifts
Motivated employees create the best possible outcome. It is easy to hire and assign work to be completed as needed, but to introduce efficiency, effectiveness and optimization requires all workers to feel safe, secure and heard within their workplace environments.
Large scale organizations such as Google and Apple were quick to identify this as a point of concern. As a result they approach the social aspect of ESG by introducing better working conditions, better take home packages and ensuring concerns around inequalities are met swiftly.
This in turn encourages employees to put on their best faces and work towards conducting activities in the best capacity possible. Additionally organizations that pay attention to social criteria appeal to professionals looking to contribute to your business. The likelihood of bringing in more skilled talent increases when they are aware of the policies in place to keep them safe and happy in their workspace.
Neglecting social criteria not only leaves a bitter taste with existing employees, but could be considered legal negligence. As a result, these organizations are more likely to be on the receiving end of negative government action while losing talent.
5) Investment and Asset Optimization
The attention investors now pay to ESG compliance has greatly increased over the last decade. Investors have noticed ESG compliant organizations are simply more profitable and a stronger long term investment than their negligent counterparts.
Companies internally have been allocating capital towards more sustainable investments including equipment, energy sources and packaging. This helps shield them from facing government repercussions for not considering long term impacts on the environment that result in heavy fines or legal action.
The time for organizations to create unwanted side effects from their business activities has come to a close. With ESG criteria developed to establish international standards and guidelines businesses must take the time to understand their end to end processes and whether they could be doing more or better.