First of all: why does ESG matter?
ESG (Environmental, Social and Governance) is a reflection of your company’s commitment to both ‘good business’ and ‘business for good’. This means being transparent, honest and accountable in regard to:
- How responsibly your business is managed.
- Actions that your business is taking to minimise its environmental impact.
- How committed your business is to the wellbeing of internal and third-party stakeholders.
Of course, operating within the confines of the law and with respect to our surroundings should already be high on the agenda – but there’s a difference between making that part of your organisation’s ‘purpose’ and strategic, data-backed ESG. As we touched on earlier, not only are governments looking to regulate ESG in a more coherent manner, but consumers and investors are increasingly taking note of firms’ ESG reputations when the time comes to break out the wallet.
Does ESG really have a commercial impact?
It’s easy (and not uncommon) to dismiss certain aspects of ESG as ‘feel-good’ metrics - and we may have some overzealous marketing (aka greenwashing) to blame for that. But when it comes to ESG as a determiner of financial performance, the outlook is clear: firms that report positively against ESG criteria also perform significantly better financially as a result. At one end, consumers are not only notably more likely to support companies that operate responsibly with respect for the environment, for example, but they will also withdraw their business from those that are seen to be falling short.
At the other end, investors are also increasingly drawn to enterprises that can demonstrate diligence in social, financial and fiduciary matters, investing heavily in dedicated ‘ESG Funds’. The reasons are manifold - from the confidence that good governance signals to investors, to more socially-conscious shareholders putting their stake in ‘business for good’.
