In an era when environmental and social responsibilities are increasingly paramount, integrating Environmental, Social and Governance (ESG) practices into business operations has become essential for all businesses. The term ESG is under some attack, especially in the US, but the underlying principles are enduring.
This article outlines the reasons for an organisation to invest in ESG, emphasising the long-term benefits of sustainability, resilience, positive stakeholder relationships and public sector/university contracts.
Unlike CSR, which, in simple terms, refers to what organisations do, ESG refers to a set of criteria used to monitor and evaluate what a company does in terms of its impact on the environment, its relationships with its stakeholders, its governance practices and its social impact. ESG is not merely a compliance measure but a strategic move that aligns with global trends, societal expectations, and responsible business practices.
The rationale behind ESG
- Risk Mitigation: ESG factors are integral in identifying and mitigating potential risks, such as regulatory changes, reputational damage, and supply chain disruptions. Companies with robust ESG practices are better equipped to navigate uncertainties.
- Competitive Positioning: A rigorous ESG strategy, with a focus as much on the S (Social – ie employees and community/society) as well as E (Environment) and how they are monitored, measured and reported on G (Governance) is a source of competitive advantage.
- Enhanced Performance: McKinsey analysis indicates a positive correlation between strong ESG performance and financial outperformance. Investors are increasingly considering ESG metrics as indicators of long-term value creation, attracting capital from socially responsible investors – and at preferential interest rates.
- Brand Reputation: Consumers are becoming more conscientious, preferring to support businesses with ethical and sustainable practices. An investment in ESG not only aligns your business with societal values but also fosters trust and loyalty among customers and all stakeholders. Globally, 67% of people think that companies should evidence a positive contribution to society.
- Attracting and Retaining Talent: The modern workforce values companies committed to social responsibility and sustainability. Investing in ESG practices can help attract top talent and reduce turnover by fostering a positive corporate culture. Research shows that employees who feel they are working towards a good cause increase their productivity by 30%.
- Regulatory Compliance: Proactively adopting ESG practices ensures compliance with existing and future regulations, positioning your business as a responsible and forward-thinking entity. In the EU the Corporate Sustainability Reporting Directive (CSRD) requires that companies disclose sustainability issues from a ‘double materiality’ perspective, in a rollout that impacts on SMEs by 2028.
- Improved Stakeholder Relations: ESG practices promote transparency and accountability, strengthening relationships with all stakeholders, including customers, investors, employees, and communities. Positive stakeholder relations contribute to long-term success and sustainability.
- Public Sector Procurement: The UK’s 2012 Social Value Act reflected a commitment to enhancing the social, economic, and environmental benefits of public procurement. Initially the Act required public service commissioners only to consider these wider benefits in their procurement processes. In 2020, the government announced an extension to this approach, requiring that most bids explicitly evaluate social value.
Many case studies confirm the fact that businesses can grow, gain more business and build their reputation through social value, but sadly too many boardrooms are not embracing the opportunity. If this is you, be careful!
UK regulation is coming. The cross-party Better Business Act Campaign now has over 2,500 signatories in support of a change to Section 172 of the UK Companies Act, to make it obligatory to act and report on the ‘triple bottom line’ – that is people and planet as well as profit.
ESG is not only a moral imperative but also a strategic business decision that positions a company for long-term success. By integrating sustainable and responsible practices, an organisation can enhance its financial performance, mitigate risks, and contribute positively to the wellbeing of the planet, society and the local community.
Find out more by contacting Adrian Pryce on 07720 297402 or via Adrian.pryce@northampton.ac.uk or visit Be. Partners.
Associate Professor Strategy & Society CSBP University of Northampton
