Four Ways ESG Provides Value

Environmental, social, and governance challenges (ESG issues) are strongly tied to every company. So, it stands to reason that a strong ESG proposal could be valuable.

E = environmental criteria, which considers the energy and waste your business consumes as well as the resources it requires.

S = social criteria, which takes into account the connections your business has made and the reputation it has built in the localities where it conducts business.

G = governance, is the internal system of practices, controls, and procedures your company adopts to govern itself, comply with the law, and meet the needs of external stakeholders.

Regardless of the location or business model of a company, the following four levers should be considered. All of them should be seriously considered because of the potential for value creation.

1. Grow your top-line

A compelling ESG strategy can enable your business to penetrate new markets and grow within existing ones. Governmental bodies are more willing to grant corporate actors the access, approvals, and licenses that open up new growth opportunities when they have faith in them. ESG can influence customer preference as well. Studies reveal that if a green product fulfilled the same performance criteria as a nongreen counterpart, many consumers across a range of industries would be willing to pay a little bit extra for it.

2. Reduce costs

ESG can significantly lower costs as well. Effective ESG implementation has a number of benefits, including the ability to reduce rising operational costs (such as raw-material costs and the true cost of water or carbon). According to research, resource efficiency and financial performance are significantly correlated, and this can have an impact on operating profits of up to 60%. Recognizing the opportunity is the first step in realizing value, just like with each of these four ties to ESG value development.

3. Enhance employee experience and productivity

Higher job satisfaction is correlated with having a positive social influence, and field research indicates that when employers “give back,” staff members respond positively. Similar to how a sense of greater purpose can motivate your staff to work more, a weaker ESG proposition can reduce productivity. Strikes and worker slowdowns are the most obvious examples. However, it’s important to keep in mind that supply chain restrictions can occur outside the confines of your company. Subcontractors are often managed loosely, sometimes with little control of workers’ health and safety.

4. Optimize investment opportunities

By allocating money to more attractive and sustainable alternatives, a strong ESG argument can improve investment returns (for example, renewables, waste reduction). Remember that you must begin from the correct baseline in order to properly account for investment returns. When it comes to ESG, it’s crucial to keep in mind that a passive strategy is typically an eroding line rather than a straight one. For instance, continuing to use machinery and facilities that consume a lot of energy can cost money in the long run. While updating your processes may demand significant expenses, waiting it out may prove to be the most expensive alternative of all.

The rules of the game are changing. Regulatory responses to emissions will probably have an impact on energy costs and may particularly have an impact on the balance sheets of sectors that use a lot of carbon. Additionally, new restrictions on a variety of enterprises, many of which may need to catch up, will be imposed by things like bans or restrictions on single-use plastics. Repurposing assets now is one method to be ahead of the future curve; for example, failing parking garages could be turned into more in-demand uses, such as daycare centers, as is starting to happen across many cities.

A Step Towards ESG

The relationship between ESG and value creation is very strong. Particularly in terms of the bottom and top lines, these four factors can make a difference. Leaders should keep such links in mind in a world where environmental, social, and governance challenges are growing more urgent than ever. Companies may be able to exercise more strategic freedom thanks to a stronger external value proposition, which reduces regulatory pressure.

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