Five Compelling Reasons Why Boards Should Prioritise ESG
ESG (Environmental, Social and Governance) has made its way into UK boardroom discussions. Rather than the latest fad this is where it needs to stay. Evidence tells us that businesses that ESG (when embedded in an organisation) can drive long term sustainable success.
Why does ESG matter?
ESG is going nowhere. A good indicator of this is the EU Corporate Sustainability Reporting Directive (or CSRD as it is better known).
CSRD requires large or listed companies to disclose information on their environmental and social activities. It also requires evidence of good governance, so that investors and other stakeholders can better evaluate their performance. It does not just relate to companies headquartered in the EU, UK companies who previously had to report under the non-financial reporting directive will be obliged to report under CSRD.
This is just the start of more extensive reporting requirements for all businesses so it would pay you well to ensure you have frameworks in place to meet future requirements.
#2 Investor appeal
Research tells us ESG is increasingly relevant to investors (who in fact coined the term first). This has led to a number of frameworks (eg SASB, GRI, CDP) that companies use to demonstrate their credentials. There are mixed views on whether ESG investments outperform the market but it is widely acknowledged that an organisation with good governance is less risky and therefore a better option for long-term investment.
As Alex Edmans tells us in his book “Grow the Pie”, purpose and profit are not mutually exclusive but rather intrinsically linked.
#3 Operational efficiencies
With energy costs escalating doesn’t it make sense to find ways to operate more efficiently?
If you implement energy and water conservation programmes or manage waste it can generate savings for your business.
The UK Business Climate Hub gives guidance on renewable energy, electric vehicles and more. It also signposts to sources of green finance so you can start to make the change.
#4 It matters to your employees
Employees want to work for businesses that have a positive impact on society and the environment. Research by KPMG found that almost half of UK office workers want the company they work for to demonstrate a commitment to ESG. They also discovered that 20% have turned down job offers for companies that do not meet their values.
It retains talent too. Many employees are keen to develop new ESG skills or to volunteer for good causes. Benevity’s Goodness Engagement Study of more than 2m users found that turnover reduced by 57% for employees engaged in volunteering or whose companies took part in corporate giving.
#5 The Marketing Conundrum
Certainly consumers are attracted to purposeful brands. It’s one of the reasons why there are 1500+ B-corps in the UK according to the B Lab UK and London is the city with the most B Corps in the world. Companies like Danone UK, Sipsmith, Coutts and Innocent Drinks all proudly showcase their B Corps certification.
The Cost of Living crisis may impact whether consumers will pay more for sustainable products. A recent survey by Deloitte tells us that consumers want to adopt more sustainable lifestyles even if cost or lack of information is a barrier.
It’s tricky for businesses looking to present their brands as sustainable. Organisations could be accused of greenwashing or even greenhushing. It’s vital to speak authentically and to consider the principles of the UK Green Claims Code.
These are five compelling reasons why Boards should prioritise ESG. It’s not a complete list and perhaps the most important reason is that it’s The Right Thing To Do.
If you’ve reached the end of this article and you’re thinking this is just for large corporates, I encourage you to think again.
According to government statistics there are 16.4m people working in SME businesses which contribute £2.1 trillion to the economy – that surpasses the numbers for large UK businesses. The opportunity for SME businesses to improve their ESG credentials, engage stakeholders, innovate and realise benefits is huge.