What is ESG
In short, ESG stands for Environmental, Social, and Governance. These three elements encapsulate an organisation’s key internal and external impacts, with stakeholders of all types, including customers, becoming increasingly conscious of their significance.
Concerns about the impact of business activity on the environment specifically have remained a notable topic in the media and amongst business communities for some time.
However, in recent years companies and large organisations have also begun putting emphasis on addressing the social impacts of their business activities, as well as the influence of their governance.
Here’s a summary of what each of the three elements of ESG are all about:
This is all about minimising ecological footprints, preserving resources, addressing climate change concerns, and prioritising sustainability. Through strategies like energy efficiency, waste management optimisation, and sustainable supply chain practices, companies can help to reduce harmful environmental impacts while improving their operational efficiency.
The social aspect emphasises a company’s commitment to social responsibility, human rights, and positive societal impact. It encompasses factors such as fair labour practices, employee relations, customer satisfaction, community engagement, diversity, and inclusion. By prioritising social well-being, companies can foster employee satisfaction, enhance customer loyalty, and build stronger relationships with their communities.
While the environmental and social aspects tend to receive more attention and discussion, the importance of governance is sometimes underestimated or overshadowed, despite the fundamental role it plays in shaping a company’s overall impact and reputation.
Governance involves establishing systems and processes for decision-making, transparency, and ethical behaviour, as well as fostering a culture of accountability and transparency.
Ensuring strong governance helps provide stability within an organisation and its practices, thereby increasing confidence and trust amongst stakeholders, and can also be a key area of consideration to help with fundraising and attracting investors.
Why should I be thinking about ESG within my organisation?
As well as growing regulatory reporting requirements for organisations, there are a number of benefits to integrating ESG practices into your organisation.
Here are some examples:
- Enhancing Reputation and Stakeholder Trust:
Demonstrating your commitment to responsible and sustainable business builds a positive reputation and gains the trust of customers, investors, employees, and the wider community. A strong reputation for ESG excellence can differentiate your business in a competitive market and attracts stakeholders who align with your values.
- Mitigating Risks:
ESG considerations help identify and mitigate various risks. For example, environmental risks, such as lack of resources or unsustainable practices, which can directly impact the availability and cost of essential resources for businesses. Social risks, including labour disputes or negative community relations can harm brand image and profitability. Governance risks, such as corruption or unethical conduct, can result in legal consequences and damage stakeholder trust. By proactively addressing these risks through ESG practices, you safeguard your business against potential disruption.
- Driving Innovation and Efficiency:
Integrating ESG into your business can stimulate innovation and drive operational efficiency. Environmental considerations, such as adopting renewable energy sources or implementing sustainable waste management practices, can reduce costs, enhance resource efficiency, and improve long-term sustainability. Socially responsible practices, such as fostering a diverse and inclusive workforce, can drive creativity, improve employee satisfaction, and attract top talent. Ethical governance practices foster transparency and accountability, reducing the likelihood of compliance issues and improving decision-making.
- Accessing Investment and Financing Opportunities:
ESG considerations are increasingly influencing investment decisions. Many investors prioritise companies with strong ESG performance. By aligning your business with ESG principles, you can attract sustainable investment capital, unlock funding opportunities, and gain a competitive edge. Additionally, it can enhance access to green financing options and incentives offered by governments, promoting further growth and development.
- Meeting Stakeholder Expectations:
Customers, employees, potential new recruits and communities are placing greater importance on sustainable and socially responsible practices. Embracing ESG within your business demonstrates your commitment to meeting these expectations, fostering stronger customer loyalty, attracting and retaining top talent, and building positive relationships with local communities.
How to get started on your ESG journey?
As with any new business initiative, pulling together a full strategy and implementing it while trying to balance the rest of your business can seem like a daunting task, which is why it is important to break it down into a series of smaller steps.
The simplest way to do this is to use the Now, Where, How approach. The first of these steps is to identify where you are now.
Even if you have not consciously thought about ESG in your business before, whether you realise it or not your business is already making positive or negative impacts on each of the three ESG areas in some way.
By assessing the current impacts your business is making, you can begin to identify areas for improvement, and start to form an initial focus for your ESG strategy.
A great tool to assess your current situation is our ESG Readiness Diagnostic.
Upon completion you will have your own report to work from or there is an option to share your results with Robson Laidler’s ESG consulting team and have them contact you back to discuss the results.
After your initial analysis, you will likely have a multitude of ideas for ways you could improve your ESG impact.
The key to avoid being overwhelmed is to employ the Pareto principle, and select the top 20% of ideas that are likely to produce 80% of the ESG impact for your organisation.
Or to help create momentum, you could start by picking the top 20% of ideas that are the easiest and quickest to implement. These may not necessarily have the largest impact, but this will allow you to get the ball rolling and help to get your team onboard with ESG.
The important thing is not to try and implement every ESG improvement idea at once. Trying to do this on top of your already busy schedule running an organisation, is going to make the process of implementing an ESG strategy overwhelming and make it difficult to get your wider team onboard.
If you don’t know where to start when it comes to ESG, or would like some additional professional support, it may be useful to use an external consultant.
For example, Robson Laidler’s ESG consulting service can help in the following ways:
– Helping you analyse your starting position, and identify areas for improvement
– Assisting in pulling together a measurable and realistic ESG strategy
– Helping to produce quantifiable data to monitor your strategy performance
– Carbon accounting to help measure your organisations environmental footprint
– Provide ESG focused pension options for employees
– Financial planning advice form directors with ESG considerations
A member of our ESG consulting team can then contact you to discuss your diagnostic results if you wish.