By taking ESG reporting seriously, you go beyond giving stakeholders like consumers, financial associates, and governments the information they want. ESG reporting also offers industries a range of competitive advantages.
The green shift and the road to a much more sustainable society offer benefits if you choose to refine your commitment to Environmental, Social and Governance (ESG) reporting. It's important to incorporate ESG factors into performance management and business strategy.
ESG criteria is part of a financial risk assessment, where a good score provides a longer-term return. Non-financial factors are often less measurable but are increasingly regarded as just as important. According to PwC's ESG investor survey, 8 out of 10 global investors believe that assessing ESG risk is critical to making good investment decisions.
Independent research firms conduct thorough ESG analysis, assigning companies a score that ranks their adherence to ESG principles and objectives. ESG then becomes a tool for investors to avoid commitment to companies with weak ESG. Companies with a higher ESG rating are more likely to end up in investor portfolios.
Support by top management is crucial. Management clearly own the corporate sustainability agenda. Organizations must understand key drivers, opportunities and risks and how sustainability affects the future market and economic development of the company. Stakeholders must demonstrate clear engagement through communication, priorities, use of resources and action. The goal for the organization must be to be sustainable from start to end.
Here are eight competitive advantages of a commitment to sustainability:
1 Increased collaboration
Sustainability initiatives provide greater opportunities for customer collaboration. More and more customers will opt out of suppliers who cannot document their greenhouse gas emissions. Many industry networks now set clearer vendor requirements for broad social and environmental responsibility.
As the UN emphasizes: ”To succeed with the Sustainable Development Goals, new and strong partnerships are needed. Governments, business and civil society must work together to achieve sustainable development.”
2 Better financing
The company's climate work will increasingly affect financing. A new EU regulation provides a standard companies must adhere to. Your commitment to sustainability will increasingly affect the quality of financing terms—or whether you can get funding at all. Banks and finance companies place great emphasis on this today. Owners and investors will also reward companies that invest in sustainability to a greater extent. Better ESG scores give an enterprise better access to necessary capital.
As EY puts it:
"Institutional investors are aligning their portfolios toward better ESG performance. This signals a different approach from focusing on ’responsible funds,’ and instead seeing ESG issues as fundamental to the performance for all investments."
3 Important for recruitment
And you want to attract the best people, right? A company's ESG profile will also affect recruitment. Global surveys show that the vast majority want to work for an organization that contributes positively to society in a broad sense.
Organizations with strong ESG scores should communicate their sustainability commitment to reach the best potential employees.
4 Motivated employees
Once you've found top talent, don't you want to keep them, too? Emphasizing ESG standards motivates employees, leading to greater job satisfaction and productivity.
In an article about ESG and attracting the best employees, McKinseys says:
"A strong ESG proposition can help companies attract and retain quality employees, enhance employee motivation by instilling a sense of purpose, and increase productivity overall. Employee satisfaction is positively correlated with shareholder returns."
5 Stronger consumer demands
Consumers increasingly demand corporate commitment to the environment and sustainability. Companies that make a positive sustainability contribution experience increased consumer preference and a better reputation. In collaboration with NielsenIQ, McKinsey conducted a study to find out if consumers really care about sustainability and ESG-related requirements. It showed a clear correlation between sustainability labelling and sales growth. Under Re:think, Steve Noble has written about the study:
"Products that didn’t have ESG-related claims on their labels grew, on average, 4.7 percent per year over the course of the past five years, while products that did have ESG claims grew 6.4 percent. In CPG (Consumer Packaged Goods), which generally grows in line with the economy, that delta is huge. Importantly, we also found that putting more than one ESG-related claim on a product label correlated with two times greater growth than putting only one claim on the label. It doesn’t seem like we’ve hit diminishing returns on this."
6 New business opportunities
Taking ESG seriously can also provide new business opportunities. A sustainable business strategy promotes innovation because it is based on continuous improvement and adaptability. For example, emphasizing climate footprint and sustainable consumption, internal processes can become more efficient and contribute to greater profitability by reducing material and energy consumption.
7 Continuous improvement
ESG standards will also help businesses identify their strengths to build competitive advantage, and weaknesses requiring targeted improvements. Basically, doing good for the environment is an opportunity to cut costs and increase productivity. The ongoing process of evaluation and improvement is crucial to continue to be a relevant player.
Thompson Reuters states:
”Many individuals with expertise in environmental, social & governance (ESG) issues frequently assert that investors and senior executives are increasingly viewing ESG through both the risk reduction and opportunity lens. Indeed, the core concept behind sustainability is efficiency and using fewer resources (both natural, financial, and human) to generate the same or better business performance.”
It is smart to improve your sustainability strategy by constantly reimagining products and services, optimizing value chain productivity and collaborating with relevant stakeholders to uncover new opportunities. This could include measuring and communicating sustainability performance – including corporate commitments across ESG goals and diversity, equity and inclusion (DEI) initiatives.
8 Staying ahead
It can be dangerous to fall behind. Companies that stay ahead of new ESG requirements ensure that their operations comply with legislative changes and reporting obligations, which in turn strengthens competitiveness.
Businesses' investment in sustainability and controlling ESG data help prepare organizations for regulatory changes and avoid potential penalties. Implementing ESG principles can also reassure potential investors that a business is stable, responsible and prepared for future regulatory changes.
Advanced use of technology in your core operations is a part of staying ahead. Using technology to reduce your footprint or develop new sustainable products or services are obvious choices. A key part of this work is monitoring and analyzing ESG data to ensure commitment to a more sustainable business.
Transform your business trajectory with a robust ESG strategy
Sustainability isn't just a buzzword; it's your competitive edge. Through ESG reporting, businesses are unlocking a world of potential. Think greater collaboration, attracting and retaining the best talent, tapping into the pulse of consumer trends, and uncovering new market opportunities. The result? Streamlined operations, increased sales, and accelerated profitability.
Are you capturing its full value? Together, we can create a better future for your business. Start your ESG journey with Columbus today.