It’s 2023 and the world of EHS continues to evolve radically. Move over, siloed health and safety operations – Environmental, Social and Governance (ESG) strategy is here to shake things up and help shift our perspectives about how EHS is considered within a business.
ESG is essentially rooted in the idea that an organisation’s value lies in more than just the bottom line, and that its day-to-day operations have an effect on numerous stakeholders. In a nutshell, ESG factors pertain to everything to do with business that’s not strictly numbers-related. These factors are a variety of internal and external influences that affect both the perception and positioning of your business.
ESG assets, while intangible, are becoming increasingly important for investors, creating evidence of a significant competitive edge. It’s no longer acceptable to only consider financial metrics; investors now also consider a company’s impact on the environment, its employees, and the communities it operates in.
For investors, a strong ESG strategy that compliments the internal EHS of a company is the new gold standard. For organisational leaders, this also just makes good business sense. With ESG front and centre, organisations can tap into high-growth markets, invest in long-term assets, and develop a culture that attracts the best talent.
Research clearly shows that companies with strong ESG strategy have better financial performance, and also see a lower rate of workplace accidents. Statistics such as these highlight the clear link between health and safety, and ESG, and how combining ESG strategy with health and safety practices will streamline your organisation’s performance.
The ESG criteria began as a UN initiative, encouraging businesses to consider their impact within these areas – environment, social and governance – and focus on the wider risk of their operations. 20 years later, ESG criteria have grown into a broad series of indicators that represent more than $US 23 trillion in value.
Understanding what each pillar of ESG entails is incredibly valuable for decision-making, risk management, and maximising your stakeholder engagement. Not only will a strong strategy attract more investors, but it will also help you to reduce your impact as an organisation, and improve your systems throughout.
ESG – isn’t it all obvious?
While many of these factors are inextricable elements of current business practice, they’re sometimes shunted to the side when it comes to cold, hard financial planning. Perhaps it comes somewhat surprisingly then, to learn that investors apply non-financial ESG factors to their analysis to identify material risks and growth opportunities.
It may seem obvious at a glance that organisations should evaluate these areas within their businesses, but now there’s also incentive to do so from an investment standpoint. There are specific areas where a focus on ESG factors directly helps create value, and neglecting these areas might be detrimental to organisational longevity.
What value-creation exists directly from these ESG factors?
By committing to sustainability across your product or service range, you’ll attract a greater range of B2B or B2C customers and stay within government compliance regulations. Ultimately, sustainability is becoming an inherent part of how we do business.
You’ll also tap into early-stage, high-growth markets, whilst simultaneously benefitting from governmental support (think electric vehicle subsidies) that creates access to opportunities for growth. There’s an ever-increasing customer segment that is willing to pay a premium for demonstrated clean, green products. The more companies that subscribe to ‘going green’, the more this customer segment can expand.
On the flipside, not adhering to sustainability standards and regulations could do irreparable damage to your existing clientele and overall brand reputation.
Attract millennial investors
The next generation of investors and workers have a far greater focus on social consciousness and global self-awareness. This generation has grown up with the climate crisis being taught in schools, and have witnessed the rise in collective focus on mental wellbeing, social welfare and the value of an enjoyable and rewarding working environment.
As a result, this younger age group, who are making their way to significant investing positions, represents a transition in societal mindset towards business that values an organisation’s impact on many factors, rather than a sole focus on numbers.
Investment and asset optimisation
When you invest in sustainable, long-term assets over their energy-guzzling counterparts, you’re optimising your business practice with innovative long-term thinking.
Investing in company assets with a sustainable mindset keeps energy consumption top of mind and ensures your business is looking forward. You’re more likely to choose assets that have a lower energy-consumption rate, and will last longer, which benefits your business in the long run.
Employees working for an organisation with a strong purpose will always be more motivated than those who do not. Focusing on employee wellbeing as well, particularly with carefully thought-out company internal structure, as well as wellbeing incentives, create an environment where people can be supported, and consequently, more productive.
With a strengthened internal structure, opportunities for individual growth and a company-wide focus on minimising waste and environmental harm, you’ll benefit from a strong reputation that attracts top-level talent.
ESG leaders in all industries have shown greater resilience during the global pandemic crisis, demonstrating a more robust, long-term performance.
Proactive and future-focused companies understand the need to communicate ESG within their business strategy and purpose and have demonstrated higher ESG performance and higher returns on their investments, lower risks, and better resilience during the crisis.
From an investor’s perspective, a focus on ESG factors helps to minimise investment risk, by weeding out unsustainable companies, with outdated practices and potentially harmful side effects of their operational activity.
Proactively thinking about your ESG proposition is a great way to see how these factors can create value for your organisation.
With ESG comes exponential value creation, from attracting top investors, keeping your people happy and healthy, to operating with integrity – future-proofing your organisation for generations to come.