Back in 2019, Environmental Social & Governance (ESG) was just another business buzzword - fast forward to 2021 and it’s at the top of boardroom agendas everywhere. A huge amount has been written on the topic, but if you’re still struggling to get your head around what ESG means for your business, in a nutshell, it is about a company’s commitment to do more than make a profit. It could mean making an effort to contribute positively to the environment or social causes, or to conduct your business more responsibly.
ESG is not new, but why is it a big deal now?
It is currently being driven by demand from various directions – government, employees, investors, and customers – that are united in looking for better outcomes for all. All of these stakeholders are gently (or not so gently) looking for companies to step up as they see daily examples of climate change and social injustice. ESG is the companies’ response to this shift in sentiment. It’s a fundamental shift in the way they do business and how they interact with their suppliers, markets, and customers.
Let’s not pretend incorporating ESG factors will be easy. However, it’s probably not as difficult as people fear either. It requires a level of corporate honesty and transparency that may be foreign to some businesses, but it’s not going away, so we would humbly suggest that there is little point fighting against it.
Here are our five top tips to get started on ESG:
ESG is just another measurement system
Every business is used to preparing its financial accounts and measuring its financial performance. Despite the confusing breadth of subject matter, ESG is just a measurement system trying to capture everything outside of financial performance. While there are issues around data and common standards, these will get solved. For now, being transparent about what your business is doing and how it is measuring progress is a good start. Keep an eye on the emerging international standards like TCFD reporting (Task Force on Climate-Related Financial Disclosures) and the ISRS (International Sustainability Reporting Standards) developments for what should be reported.
It’s not just about the E
While climate is the biggest headline grabber, ESG is not just about the E. ESG can certainly be about strong environment standards, such as using sustainable natural materials, recycling, water conservation and carbon emission reductions. But it can also be about advancing social issues, such as diversity and inclusion in the workforce and leadership, human rights or poverty reduction. It can also be about ethical corporate governance measures, such as anti-corruption and fair executive compensation.
You can’t be a leader at everything – it’s your choice
With ESG covering such a large subject matter, it can be confusing where to start but that’s okay. There are going to be some minimum standards, but beyond that it’s about finding which parts of ESG are the best fit for your organisation - its history, culture, people and strategy. In the field of finance, for example, we see organisations making legitimate choices to focus on areas such as ethical investing, improving the UK housing stock, increasing access to finance or focusing on their immediate community’s needs.
ESG is about opportunities, not just risks
ESG means doing things differently, which inevitably means taking risks, but doing nothing is increasingly becoming an even greater risk. We see the hardest of hard-nosed investors now looking at ESG as a central driver of enterprise value within their businesses. Future income streams that are sustainable are quite obviously much more valuable than a quick short term profit. Using climate change as an example, it’s not just about your business and its immediate surrounds, but how your suppliers, markets and customers will be affected as well. Take example from the pandemonium caused by one ship in the Suez canal in early 2021 - we have seen how much chaos can caused by one seemingly isolated disruption. The opportunity to build sustainability and resilience into your business is an opportunity to protect its future viability and profits, as well as an opportunity to open new markets and new revenue opportunities.
Just make a start
They say that the hardest thing about running is putting your shoes on and taking that first step. ESG is little like that as well. The first step for your organization is to work out which areas you want to focus on, and what you want to be known for. Figure out how you can do better in those areas and let people know the journey that your organisation is going to take. This can start with the Board or C-suite, or it can start with employees. Maybe your customers already have expectations, or maybe your suppliers are asking questions about your ESG plans and how you conduct your business. Perhaps some of your peers have made ESG commitments and are already reporting on their progress. Taking that first step will mean that you start moving in the right direction, and once you start moving, you’ll be in a better position to meet the ESG demands from customers, employees, investors and all of the stakeholders in your business.