Opinion: 5 ESG considerations when building better business
Sustainability is a fundamental component to revitalising organisations for the future. Most leaders had ESG concerns on their agenda before the pandemic hit. But as COVID-19 and subsequent economic crisis caused unprecedented disruption, environmental and social factors were thrust into the limelight, reinvigorating internal conversations about the benefits of implementing sustainable practices.
Now, sustainability is quickly becoming table-stakes for most, if not all, companies. So, what can we do, as leaders, to build better businesses for a greener future?
1. Embed ESG into your business core
Over the past 12 months, leaders discovered that responding to COVID-19 and addressing sustainability issues are not mutually exclusive efforts. But making ESG part of your corporate purpose isn’t just developing a mission statement and including it within reports and accounts, it is about embedding purpose into the very core of the business.
Without conviction and regular communication from the top, the programme will struggle to get traction. Many organisations are, understandably, still in the mindset of incremental change. However, just as we’ve seen a widening gap between the digital leaders and digital laggards during the pandemic, the companies that mapped their ESG agenda in years will need to start rapidly scaling their initiatives to remain ahead of the curve.
2. Consider foward-looking impact measures to report
There is a level of increased urgency around global sustainability that mean businesses can no longer 'greenwash'. Simply reporting on past performance will no longer be sufficient. Leaders should consider forward-looking impact measurements to report on the financial and non-financial ESG performance – not only because it is quickly becoming part of the standard reporting package, but because shareholders will expect it. Furthermore, consumers are demanding more traceability and to know the full lifecycle of product. Reporting on ESG KPIs can prove a differentiator amongst these customers, who look to do business with an organisation that has tangible green credentials.
3. Increase green investments
Many leaders are still focused on finding cost-cutting measures to offset declining revenues while remaining adaptable amid the changing business landscape. It will likely prove challenging for many to fund the investments needed to drive their ESG initiatives. Even so, according to HSBC’s Made for the Future report, almost half of UK companies plan to increase their environment-related spending between now and summer 2021. To drive a programme successfully, the CFO needs to understand the value and see ESG as a commercial agenda.
Indeed, smart investments in climate resilience and a lower carbon future can actually be cost effective in the long-term. For example, more efficient work practices and higher productivity will drive down working capital required per unit.
4. Weave digital transformation and sustainability
Sustainability and technology are not separate priorities. Most of the green revolution is powered by digital, including electric vehicles, renewable energy, carbon capture technology, advanced analytics, IoT and blockchain. As outlined in this year’s Davos Agenda, companies need to weave digital transformation and sustainability into their DNA in order to survive.
For instance, as vaccine programmes are rolled out, many organisations will be looking at a return to the office, sparking investments in smart and sustainable tech – particularly sophisticated systems and sensors for office space. For those looking to accelerate their cloud transformation programmes, improved sustainability is a natural outcome of switching from on-premise.
5. Empower and incentivise employees
A clear ESG purpose and agenda can unleash employee potential — helping CHROs win the war for talent, retain their best people, and boost employee motivation. Now, around two-thirds of millennials take a company’s social and environmental commitments into account when deciding where to work.
To reap the rewards, leaders must empower and nurture their people and provide the necessary resources to ensure that environmental, social and governance objectives are met, and policies, procedures and standards are appropriately implemented. However, unlike established corporate functions such as finance, ESG is in its infancy, and organisations are still developing their policies. A key part of the required cultural shift will include upskilling and reskilling employees, and changing how teams are incentivised, including the integration of societal-impact goals into compensation.
The pandemic has given leaders an opportunity to embed sustainability across their company and offerings, from supply chain to products and services. The coming year will see environmental and social factors continue to be front and centre on the global stage, and businesses must step up their game accordingly.