The benefits of ESG campaigns in business environments are growing.
Already, we’ve spoken in previous articles about the positive impact sustainability, and sustainable IT can have on organizations. However, sustainability is often just one component of a wider strategy for business leaders, one that encompasses environmental, social, and governance standards.
Since the acronym “ESG” first emerged in 2005, interest in the concept has grown almost consistently. In fact, there has been a five-fold growth in searches for the term “ESG” since 2019 online, even as searches for CSR and “Corporate Social Responsibility” have declined.
Across geographies, industries, and company sizes, organizations have begun investing more resources in their ESG strategies on almost a consistent basis. More than 90% of the S&P 500 companies now publish ESG reports, alongside 70% of Russell 1000 companies.
Additionally, in many jurisdictions, ESG has become a mandatory part of running a compliant business. In the US, the SEC is considering new rules requiring more detailed disclosure of climate-related risks, and additional regulations are in process.
So, what can ESG really do for businesses, and why isn’t everyone getting involved?
What is ESG? Defining ESG Policies
ESG strategies aren’t entirely new in the business world, though they’re still frequently confused for extended versions of Corporate Social Responsibility programs. With an ESG strategy, companies take an organization-wide approach to adjusting their environmental, social, and governance practices.
The idea is to improve the overall sustainability of the business, improve its reputation with customers and stakeholders, and reduce the impact on the planet. Comprehensive ESG strategies may include an IT checklist, highlighting solutions for the sustainable use and disposal of machinery.
They may also include strategies for encouraging diversity in the workplace, introducing employee wellness programs, and improving the influence the company has on society. Fundamentally, ESG campaigns break down into three core areas:
- Environmental: The “E” in ESG looks at the impact a business has on the environment. This includes all of the energy your company uses, the waste discharged, and the impact on the planet as a result. Every company uses energy and resources, and therefore affects the planet.
- Social: The Social aspect of ESG looks at the relationships companies foster with stakeholders, institutions, and people in the communities they serve. The “S” component includes labor relations, inclusion, diversity, and equity.
- Governance: With the “G” in “ESG” companies look at the internal systems of practices, controls, and procedures used by companies to govern themselves and make effective decisions. Every company requires governance, though standards can vary.
The Rising Benefits of ESG: The Modern Landscape
While ESG is far from a new concept, it has grown increasingly important in recent years. The pandemic, the war in Ukraine, and the cumulative societal, economic, and geopolitical incidents we’ve encountered in recent years has caused the importance of ESG to peak.
The rising benefits of ESG for business leaders has also been evidenced in the investment environment. Even while the rate of new investments are falling in an uncertain economy, inflows into sustainable funds are increasing.
Sustainable investments rose from a value of $5 billion in 2018, to around $70 billion in 2021. Midway through 2022, the value of sustainable assets increased to around $2.5 trillion. ESG campaigns aren’t just an important way for companies to attract investor attention.
Research found that in 2021, 60% of companies rated an improved reputation as the greatest benefit of ESG campaigns. Additionally, regulation and increased pressure from both investors and customers have also been pushing companies to incorporate stronger ESG standards.
The same report also found that 97% of companies expect to see additional benefits from an increased focus on ESG going forward, including improved employee satisfaction (28%), reduced operational costs (38%), and higher productivity (25%).
The Blockers to the Benefits of ESG for Businesses
So, if ESG campaigns have so many benefits to offer, why are so many companies still falling behind in their strategies? McKinsey notes that as ESG initiatives have gained support and popularity, they’ve also been subject to doubt and criticism.
For instance, many companies still look at ESG initiatives that something that’s “good for the brand”, but not the business bottom line. To make matters worse, some organizations believe successfully implementing and following an ESG strategy is too difficult to be feasible.
Not only can it be difficult for companies to get started with their ESG initiatives, but it can be challenging to consistently work with the right partners, and maintain the same standards. Measuring ESG ratings can be extremely difficult, and tracking the impact these programs have on financial performance is often even more challenging.
However, despite the complexities, the benefits of ESG programs still significantly outweigh the benefits. Accenture found companies that have high levels of trust based on sustainability initiatives have 3.1% higher operating profits.
What’s more, McKinsey’s Global survey in 2020, found ESG programs can contribute to more shareholder value in the next five years, with investment professionals saying they’ll pay a 10% premium for a sustainable company.
The Top Business Benefits of ESG Programs
Implementing a strong ESG initiative requires careful planning and strategy. It also requires company to take a long-term and holistic approach to considering the impact their practices and policies have on the world around them.
However, investing in ESG initiatives does deliver a number of benefits, similar to the benefits of creating a more sustainable company. The biggest benefits of ESG programs include:
1. Increased competitive advantage
As mentioned above, many companies see the biggest benefit of any ESG program to be a positive impact to their reputation. McKinsey found that companies invested in social engagement activities were more likely to demonstrate higher valuations than their competitors.
Additional studies support this idea. Around 400 IT professionals surveyed by TechTarget in 2022 said they would pay more than a 5% price premium for products from vendors with strong ESG practices. As sustainability and ethics become more crucial components in the decision making journey, both B2B and B2C companies stand to benefit from ESG initiatives.
The various metrics tracked and reported by companies in the ESG landscape are also important to employees, lenders, investors, and regulators alike. With a plan in place for improving employee and customer experiences, as well as the impact you have on the planet, you can significantly differentiate yourself from the competition in a cluttered marketplace.
2. Cost Reductions
We’ve mentioned before that sustainable business practices, such as sustainable IT can reduce costs by minimizing energy expenses and wasted budget on technical resources. However, implementing ESG can also lead to cashflow improvements in other ways.
McKinsey found reducing the use of raw materials in business environments can affect operating profits by up to 60%. Companies like 3M have saved $2.2 billion since introducing its “pollution prevention pays program”, which involves redesigning equipment, recycling and reusing products, and maximizing waste reduction strategies.
Companies investing in ESG initiatives can also attract more employees to their company without having to spend extra on recruitment costs, as staff members continue to prioritize ethical treatment. Plus, it’s even possible to reduce advertising expenses, by drawing attention to ESG initiatives, and activating customers as advocates for the brand.
3. Reduced legal and regulatory interventions
As mentioned above, government and regulatory groups are beginning to introduce new guidelines for businesses to follow in the wake of rising global crises. Rules are emerging to influence how companies share information about environmental, social and governance practices with the world.
Strong ESG initiatives can help companies to achieve greater strategic freedom, by reducing regulatory pressures. Not only does an ESG policy help to protect companies from changing regulations, but it can also improve their chances of accessing additional government support, like grants for sustainable energy usage.
While ESG reporting is only mandatory for certain publicly traded companies at this time, the marketplace is changing. Companies that continue to overlook the benefits of ESG now could have more guidelines and rules to adhere to in the years to come.
4. Greater Employee Productivity
ESG initiatives don’t just focus on the impact companies have on the environment, but on their employees and shareholders too. A strong ESG proposition can assist companies in attracting and retaining quality team members. But it can also enhance employee motivation by instilling team members with a shared sense of purpose.
Studies suggest that positive social impact correlates with higher levels of job satisfaction, reducing turnover in crucial teams. Additionally, a poor ESG policy can lead to numerous issues that drive productivity down, such as burnout, worker slowdowns and strikes.
Strong ESG initiatives also help to create an environment where all team members feel supported and empowered to do their best work. The impact ESG has on employee satisfaction can translate to higher levels of customer satisfaction, and greater profits.
5. Asset and Investment Optimization
Finally, a strong ESG proposition can help companies to enhance their investment returns. Rather than wasting money on constantly replacing equipment, protecting your reputation, or hiring new employees, you have more money you can spend on new opportunities.
When you save money on replacing people and products, you have more of your budget leftover to invest in true innovation and transformation. What’s more, because the loyalty of customers increases when a company invests in ESG, the amount of money you have to work with may be higher.
A good ESG initiative can increase average order value, customer lifetime value, and retention, boosting your operating profits while keeping operating costs low.
The Benefits of ESG Programs: Examples
The benefits of ESG programs aren’t just theoretical. They’ve already been proven by countless organizations investing in more sustainable and ethical practices. Virtually every major company in the finance, technology, healthcare, and other sectors are now investing more heavily in ESG.
Let’s take a quick look at some examples:
Microsoft and Sustainable Technology
Known for it’s commitment to innovative technology and sustainability, Microsoft committed to becoming “carbon negative” by 2030 during a press announcement in 2020. According to the company’s ESG report, the brand is committed to using its technology and influence to solve some of the world’s biggest challenges with environmental protection.
Today, the company has it’s own environmental sustainability team, committed to reducing waste, preserving ecosystems, and becoming “water positive”. As of 2022, Microsoft had removed 1.4 million tons of carbon from various sources, and has increased access to water to more than 1 million people around the world.
Accenture and Inclusion
Accenture has set itself apart from other leaders in the technology landscape with a fantastic focus on diversity and inclusion. It’s sustainable business strategy program not only includes initiatives for reducing carbon emissions, but also for improving employee experiences.
Accenture is committed to becoming the world’s most diverse company, and has set a public goal of achieving full gender parity in its roles by 2025. In 2022, 30% of the company’s managing directors were women. Additionally, the company has invested in creating a variety of powerful resources for employees in search of guidance and support.
Google and the Reduction of Waste
Like many tech innovators, Google has implemented a strong policy for global sustainability. The company is pursuing zero net emissions across its value chain and operations by 2030, supported by an ambitious goal for comprehensive clean energy. The company even created the “Google Energy LLC” to help boost its sustainability efforts.
One particularly exciting innovation from Google was the introduction of its ChromeOS Flex solution, which allows users to modernize the devices they already own with an up-to-date operating system. The solution helps companies to transform old machines into faster, more secure, and more efficient solutions for the future of work, without ripping and replacing assets.
Discovering the Benefits of ESG for Businesses
In the past, companies assumed investing in the benefits of ESG was a time-consuming and complex process, reserved mainly for bigger brands. However, any company can commit to becoming more “ESG-centric” in the modern world.
While larger organizations may have additional resources to help them set up ESG policies and form higher-level partnerships, solutions are available for smaller companies. Working with a partner or reseller can help organizations to track down vendors that meet their sustainability goals, as well as their targets for digital transformation and growth.
For companies of all sizes, an effective ESG plan is quickly becoming essential to demonstrating a commitment to cost reduction, employee ethics, and risk management. ESG is no longer just a trend in the business world, it’s an essential component of sustainable growth.
