04 Apr ESG, a tick box exercise or does it bring real value to your business and its future sustainability?
Let’s start at the beginning to give some context to what ESG means for a business today and when ESG credentials can support its ability to sustain itself.
Investors developed environmental, social and governance (ESG) ratings to value a business based on more than just profit nearly twenty years ago. Today ESG has evolved into a much more mainstream subject, now used by companies who aim to put structure in place to help understand and maximise its impact on society and the planet using these three key areas as a framework. Also, enabling a business to define how much ‘profit with purpose’ it achieves yearly.
But why bother?
If you aim to be in business for the long term, then there will come a tipping point at which you will have to take your ESG seriously. It all starts with recognising the importance of supporting your employees, those in your community and the planet’s future by using your business as a platform for good.
In general, there are two scenarios with ESG. A business throws a load of cash at it through branding and marketing campaigns to make it look good externally, but when its employees are quizzed, they haven’t got a clue what ESG is, never mind the commitments and impact of their business. It is not a good look, especially if those questions come from a potential investor, bank, or someone looking to work for you in the future. An organisation’s internal culture needs to support the external perception of its brand, otherwise it can significantly impact its long- term financial performance and reputation.
The other scenario is a business is doing great things; employees love working there, and the culture aligns with ESG values, but externally, no one has a clue because they don’t ‘blow their own trumpets’ and share the impact with the external stakeholders.
It’s all about getting the balance right because this is where the real value is achieved.
If you manage your ESG but do not report or share the impact with those who buy from you or want to work for you, you will miss out because your competitors will. You will undoubtedly miss out on securing new business and recruiting and retaining the best staff.
Reporting outcomes is vital as this informs stakeholders about how stable your business is, what your future growth plans include and how you aim to support the sustainability of your workforce and business, aligning this message with ESG.
So, promoting your ESG credentials is essential, and here are the stats to prove it:
- 83% of consumers will always choose a brand with a better sustainability record. – Wunderman Thompson
- 90% of employees who work at companies with a strong sense of purpose say they’re more inspired, motivated, and loyal. – Aflac
- One in three young workers turn down jobs due to poor ESG records – IEMA
- Engaging in socially valuable projects can reduce employee turnover by as much as 50% – IO Sustainability.
- Procurement evaluation in the past may have weighed 60% price and 40% quality, today we are seeing weightings of up to 20% for social value alone. – Propeller Studios
So, is ESG just a tick-box exercise? To some, it may seem so. But when it comes to presenting your credentials authentically, it can’t just be about a piece of paper classed as a policy with one person attempting to engage an entire workforce in a subject that has to be informed and owned by all.
When a commitment is made, and a business takes an ESG approach to its operations, the culture of that business will adapt too, engagement and loyalty will increase, recruiting costs will reduce, customer retention will improve, and all this will add value to your company and its resilience for the future.
So, all in all, ESG can sustain your business and improve societal outcomes while also working towards securing the planet’s future. And never underestimate your contribution. The UK comprises 5.5 million SMEs, employing 16 million people. Together we can make a significant difference if we all make small changes and improve our impact each year. But we must get started.
Of course, you will need to commit time and resources to the development of your ESG, but surely that is a small price to pay to ensure your business is here for the long term, managed by a loyal workforce and supported by customers who promote and sell your business for you because of your commitments to the planet and society.