At a conference, a delegate raised the question: ‘How can my business be green, when it’s in the red?’
Sadly, as the industry has built around Environmental, Social and Governance, so too has the perception that ESG is all cost and no benefit except in environmental, social and governance terms. In other words, there’s no fiscal return.
The perception couldn’t be further from the truth.
Let’s start with what is ESG? In fact, before that, what was CSR (Corporate Social Responsibility)?
The precursor to ESG, CSR was a way for businesses to demonstrate their commitment to values outside of profit. Whilst the intent was laudable, the execution was lamentable. Sadly, business after business created a CSR statement, uploaded it to their website, added it to their financial reporting, and there the commitment all too frequently ended.
With issues such as climate change, Me Too and increasing awareness of health at work, new criteria came to the fore when people were considering investing in a business or even working for one.
In the financial sector, ESG was developed to replace the weaker CSR. The major difference was that ESG relied on metrics where CSR had been based on good intentions.
Its successful application spread outside the financial sector where it has become the de facto standard for measuring and demonstrating climate-related, societal and regulatory compliance for businesses of all types, in every sector.
The explosion of ESG has been mirrored by an equally explosive growth in the number of consultants proffering ESG advice and support. Some are excellent, many are not.
We contend that this, in turn, has contributed to the perception that ESG is just another business cost. It’s not. Corporate responsibility does not have to come at the cost of corporate profitability. We call it ‘Purpose with Profit’.
A proper ESG programme should deliver quantifiable fiscal benefits to an organisation. But how?
For many organisations the major impact can be related to their place in the supply chain.
All UK-listed companies, unquoted large companies incorporated in the UK and Large Limited Liability Partnerships with an annual turnover of £36m and a balance sheet greater than £18m or more than 250 employees are required by law to report their carbon emissions.
These organisations are mandated to review their Scope 1 (direct) and Scope 2 (indirect) emissions and are, more often than not, reviewing their Scope 3 (indirect) emissions, because their shareholders, staff, customers, consumers and other stakeholders expect them to, and their competitors could steal a march if they don’t.
If you are in their supply chain, you are part of their Scope 3 emissions calculation. If you’re not taking appropriate measures, you could be putting yourself at risk of not being considered for supply contracts. Put simply, if a company that is mandated to report has to choose between a supplier that’s compliant and one that isn’t, well I’ll leave you to decide which choice they’ll make.
Anyone tendering for government departmental work, or for work with any mandated business will already be seeing questions related to ESG compliance. Non- compliance will often mean failing the tender.
A robust ESG programme will ensure your company doesn’t lose out, but it can also help your organisation’s profitability too:
- ESG measures will often significantly improve the efficiency of an organisation.
- ESG-related investments can now attract more beneficial loan rates.
- A well-publicised and well-executed ESG commitment can deliver a major competitive advantage.
Your ESG programme, when embeddedin your core operations, can also enhance your brand reputation, improve your risk management, attract impact investment (from investors seeking both financial returns and measurable social and environmental impacts), escalate your innovation, improve employee engagement and retention and deliver long- term sustainability.
Add to that the fact that many employees, customers and consumers are actively deciding to engage with businesses based in no small measure on their environmental, social and governance performance and it’s easy to see why not having an ESG programme could be a serious business inhibitor for your company.
You may be pleasantly surprised at how low the investment in ESG can be whilst generating real impact, in many cases through simple habit changes. It’s important to document the changes however, and to standardise the way you report improvements.
Companies that have seen and embraced the ESG light are benefiting from their commitment in many different ways, including a positive impact on their profitability. Can your business afford not to gain the ESG advantage?
