Environmental, social, and governance (ESG) policies have become a critical competitive advantage. In an increasingly environmentally and socially-aware business context, management boards must concentrate on decision-making for the medium and long term, focusing on value creation for all stakeholders rather than quarterly returns, says Julia Fawsley Grant, head of content and communications at ESGmark, a community which brings together responsible businesses and organisations.
The most pressing issue is that ESG-related disclosures will become legally mandated.
The UK will enforce disclosures through the Task Force on Climate-Related Financial Disclosures whilst the Green Claims Code will render ‘greenwashed’ products a reputational and financial risk. Companies demonstrating a robust, pre-existing ESG position will have an immediate advantage, avoiding fines and reputational risks associated with unsubstantiated reporting.
Consumers increasingly purchase from environmentally, socially responsible companies - with immediate contribution to the bottom line. The 2019 Co-op Twenty Years of Ethical Consumerism Report shows values-driven consumerism in the UK alone growing from c. £11 billion in 1999 to over £41 billion in 2019.
Supply chain resiliency
A broad supply chain spreads risk and reduces potential market volatility. Good governance means stronger relationships with suppliers and responsible stewardship of raw materials protects natural resources whilst protecting continual supply – all critical to the viability of any business.
A loyal, motivated workforce creates long-term value through increased productivity, lower turnover, and improved labour costs.
Deloitte’s 2021 survey of Millennials and Gen Z found that fewer than half of respondents saw business as a “force for good” but that they expect the corporate world to step up. Millennials are becoming the driving force within the business world, so forward-thinking executives must act now to improve labour conditions, enhance diversity and take a stand on environmental and social issues.
Nicole Geldert, Senior Project Manager at ESGmark members Hatch, said: "The importance of ESG has gone from being something that a single colleague is passionate about to something that everybody appreciates. That's not just at Hatch; we're seeing it with our clients and suppliers as well."
Investment and capital
ESG credentials have a significant bearing on the attractiveness of a company as an investment opportunity. Cash-rich millennials will invest their wealth in organisations whose values align with their own. At a macro level, the trend is clear. Since 2003, funds in the UK which seek to invest in companies that can demonstrate their ESG credentials have grown over 1,800%, from £2.9b to £56b according to. The growth of the Green Bonds sector is a clear demonstration of this, with achievement of ESG-related targets reducing the cost of funding.
Investors make evidence-based decisions - policy statements are not enough – the sooner you implement an active ESG agenda, the sooner you start accumulating the KPIs needed to make your ESG credentials provable.
A final thought
The above makes no sense if the main objective of ESG risk management is not put into perspective: improving the positive impact of the business. A generic ESG policy is a good start, but must be tailored to your company’s needs and desired outcomes. This may not be your top priority but failing to see its importance risks your business proposition becoming marginalised by companies that do.
The question you need to ask is – what will it cost if you do nothing?
Nicola Geldert's words sum it up nicely: "I'm glad to see that 'eco-friendly' and 'inclusive' are moving from being a buzzword to mundane parts of everyday language – they're commonplace for us, and that's how we think they should be."