Business

What role does ESG play in corporate strategy?

Especially over the last year, the world learnt the hard way that sustainable business practices extend beyond high profits and revenue. Maintaining resilience is about creating strong trust between all stakeholders, which may sound more intimidating than it is. Enter ESG; a framework designed to maximize consideration and benefits for all individuals concerned with an organization.  

 

ESG stands for environment, social and governance. Environmental factors have rapidly developed into a hot button topic over the 21st century. Organizations have become more thoughtful around the waste created by their business activities and the best processes to minimize negative outcomes. Social impact considers how businesses develop relationships with the broader community. Maintaining strong positive relationships around inclusion and diversity helps create stronger momentum around sustainability. Lastly, governance compliance revolves around two factors; maintaining internal transparency with business policies and external transparency with lawmakers.  

 

It is currently gaining worldwide popularity over the number of organizations facing fines and compensation requirements. As a result of failing to become more ethically sustainable. The European Green Deal is one such movement. Spearheading awareness and the requirement for all states to sign the bill to achieve net-zero emissions. Starting with the European Union and branching down to other powerhouse economies like the United States, more and more countries implement stringent rules while organizations are making changes to adapt.  

 

In addition to global compliance, organizations with strong ESG ratings are more likely to receive attention from private investors. Robust and convincing ESG strategies affect returns positively, especially in the long run. Investors prefer ESG compliant organizations to reduce the risks while reducing the need to lend. Positive ESG performance ratings are more likely to generate long term financial returns in comparison to non ESG compliant organizations, making them the better choice.  

 

In order to introduce ESG compliance into an organization, it must start at a leadership level. Proactive leadership decisions help translate change down through the organization, creating a stronger focus on sustainability and its impact on the bottom line. When organizations realize they can introduce positive activities and maintain profitability, it automatically becomes a stronger focus point.  

 

Reshaping corporate strategy, while beneficial, can be time-consuming. Without adequate research and understanding of the methods best suited for the organization in question, new methods could have an adverse impact on desired goals. Factors to consider when looking at bringing ESG compliance into an organization include; 

 

Pattern detection for ESG compliant organizations within their industry 
  • Clear performance benchmarking to maintain compliance with assessing agencies 
  • Long term planning to ensure ESG endeavours are long term, not one time 
  • Constant reshaping to allow for the evolution of ESG factors 

 

In order to introduce the best practices and results organizations tend to look at ESG advisory services offered by ESG Consulting organizations. These professionals spend their time understanding compliance requirements at varying scales and customize action plans based on business goals. Positive ratings help not only investors but possible customers understand what a corporation truly stands for, and as a result could help generate business or push prospective clients away.  

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