While there is little doubt that having a strong focus on environmental, safety and governance initiatives matter, what is often less clear is how to translate that into business value.
Given that organisations are still finding their resources stretched to the limit in the face of the current pandemic, being able to measure what their environmental, safety and governance (ESG) means in a tangible way is understandably becoming more important.
The first, and most often cited benefit of ESG initiatives on a business is in its impact on a business’s reputation. We have seen numerous examples of how flouting environmental or social concerns has had detrimental impact on an organisation’s appeal to its customers, employees and the market at large, but the reverse is also true. Those companies that can demonstrate that they are taking ESG into account in a consistent and genuine way garner a great deal of good will from the same parties.
Studies have shown that people want to work with companies that are concerned about the environment and communities in which they operate, as well as that operate in an ethical and socially conscious manner. There is clearly a value to be had on that front.
More tangibly, investors look at companies that are serious about their sustainability in the same light. Globally, $30 trillion (R450 trillion) worth of managed assets are being scrutinised by investors according to whether they meet ESG criteria. Furthermore, ESG is only set to become more important to investors, with one statistic noting that $70 billion was put into ESG equity funds in the second quarter of last year alone.
Beyond that, there is evidence that companies that do prioritise ESG are reported as having higher levels of resilience – an essential ingredient in times of disruption the likes of which we are enduring now.
The reason for this is simple – companies that are paying close attention to how workers are treated, and their governance policies tend to similarly evaluate their vulnerability to unforeseen shocks. This not only gives those organisations the ability to recover more quickly from disruption, it also gives them competitive advantage, according to the Harvard Law School Forum on Corporate Governance.
A prime example of ESG in action can be seen in the success of large retailers that are turning to their ESG initiatives to assess the performance of their supply chain amid periodic global lockdowns. By having essential information on hand, they can respond more quickly to potential disruptions to better ensure a predictable flow of goods to their shelves and their customers.
The bottom line is that managing, meeting and exceeding ESG standards is increasingly becoming a key focus for investors and shareholders. Integrating ESG standards in the daily operations also help enterprises attract investors’ confidence and lead their organisations to growth. Furthermore, it is an essential component of business continuity; the Covid-19 outbreak is reminding them that these principles are inextricably linked to the resilience and long-term success of a corporation.