Environment. Social. Governance. The pillars of value for the modern organisation.
The muted murmur of conversation that’s surrounded the concept of ESG (environment, social and governance) since the term was coined in the mid 2000’s has risen to a roar. Environmental good practice, people and social investment, and good corporate oversight, are now considered essential for sustainable business and metrics by which an organisation is measured. Far from a trendy idea or a box ticking exercise, ESG delivers measurable and quantifiable value to organisations that are paying attention.
1. Good ESG management delivers top line growth
ESG has the potential to drive growth because the rigorous governance principles and focus on people practices open up new markets and allow for richer engagement with existing markets. There’s plenty of research from leading companies that points to the success of a good ESG strategy, and one of the overarching themes is its ability to deliver top line growth for organisations that are committed to its application.
Those companies that pay attention to ESG are also likely to see tangible returns on that investment from a consumer and market perspective. Unilever’s Sunlight brand grew considerably in markets that have limited water resources due to its water saving capabilities, and there are numerous success stories following in their socially and environmentally aware footsteps.
2. Improved regulatory stance
With an ongoing focus on good governance practices and processes, organisations that place ESG at the top of their To Do list are likely to lead when it comes to compliance with legal and regulatory frameworks. Good internal governance is often aligned with government and industry governance and this further protects the company from unexpected risk or reputational harm. In some industries such as finance, healthcare and mining, regulatory controls are rigid and complex. By embedding good governance into the fabric of the company, organisations are better placed to navigate these landscapes and remain ahead of the curve.
3. Transparency and reputational gain
There is a lot to be said for a good reputation. A company that stands out as ethical and transparent, following good governance, employee practices and environmental awareness, is going to stand out in the crowd. While many companies are making great strides in their ESG platforms, most are still struggling with the idea that social good equals profit and market share. Consumers and investors are tired of ethical surprises and are far more likely to put their money where the ESG is.
4. Improvements in spend and cost
Using the principles embedded in ESG management, companies can improve how they manage their resources and their investment into more sustainable business solutions. These practices have the knock-on benefit of reducing spend due to visibility and more coherent control over process and expense. There’s a growing list of global companies that are proving, in their profits and bottom-line benefits, how ESG can change their spend and the costs of running their business.
Whether it’s the consumer voting with their wallet and their feet, the investor defining value by ESG principles, or the employees that walk in the doors every day, people determine the success of an organisation. Poor people practices, high staff turnover, limited transparency, unpleasant work ethics and toxic work cultures contribute to high staff turnover and reduced access to skilled talent. People don’t want to work in unpleasant places and the red flags that used to be hidden behind big pay slips and glossy office buildings are now very visible. If a business manages ESG, it has the attention of the right people.