According to a 2019 McKinsey paper, there are five ways in which strong ESG propositions can add value for your business:
- Top-line growth by attracting customers and having stronger community and government relations;
- Cost reductions by lowering energy, water and resource consumption;
- Regulatory and legal interventions: greater strategic freedom and subsidies and government support;
- Greater productivity through motivated employees and talent attraction;
- Investment and asset optimization
Today, we would love to talk about the latter. On the one hand, McKinsey argues, a strong ESG-proposition can enhance investment returns by allocating capital to more sustainable opportunities: opportunities for the long term. On the other hand, it can help avoid losses related to environmental issues.
But it also works the other way around, as shown by Harvard Business Review: ESG is universally top of mind at the world’s leading investors, including senior executives at BlackRock, Vanguard and State Street. HBR shows that – although investors have been voicing their concerns on ESG for decades – recently they’ve also started acting on it: they are (or very soon will be) holding their investees accountable for their ESG performance.
And that’s quite logical, since environmental inaction can influence a business’ value negatively, among others as a result of the five points addressed by McKinsey. Regulatory and popular demand for ESG reporting is rising, empowering both businesses and consumers to make more sustainable choices. It’s safe to say that weak ESG propositions can destroy value for your business. This will benefit genuinely sustainable options over laggards and greenwashers.
So, ESG-efforts are increasingly financially rewarded. But how do you show investors (and also customers and governments which, as summed up above, can also help you add value to your business) that your business is making an effort and is doing well? You monitor your progress and report on it. In our previous articles, we discussed different guidelines and standards that were developed for this. For most companies ESG-reporting is still voluntary, but for a growing body it is quickly becoming mandatory, for example under the EU Corporate Sustainability Reporting Directive. This currently applies to all companies with over 500 employees, but the scope is likely to be extended soon. This, in combination with the competitive advantage ESG-monitoring and -reporting can bring, should be enough reason to start today.
Salacia is here to help you track your progress and report on it consistently, professionally and without administrative hassle.
