The Environmental, Social and Governance (ESG) revolution is well and truly here. Consumers — now more than ever — are increasingly concerned about the sustainability, ethics and social impact of business transactions on our world, and with very good reason. Likewise, businesses are recognising the societal need for a deepened commitment to climate action, as well as the many opportunities to reimagine their values, practices, and behaviours to thrive in the present and safeguard the future.
The aim of this article is to help you understand the opportunities presented by having a well-crafted ESG strategy, which will not only leverage your competitive edge, but demonstrate your climate-conscious behaviour, your dedication to stakeholder wellness and crystalise your governance needs and priorities.
The ESG opportunity
For the future of your business
Globally, the COVID-19 pandemic has fuelled conscious consumerism and many businesses have responded by investing in ESG. In fact, the majority (86%) of ASX200 companies now report annually on material ESG risks and opportunities. As ESG reporting becomes more common place, organisations with a high ESG rating are outperforming in numerous ways, including adaptability during economic disarray, long-term resilience, and robust governance and systems. As businesses and investors gain more power and clout, their policies and decisions will have a greater impact on the future, and we’re seeing growing opportunities for:
- Top-line growth: A strong ESG proposition helps companies tap into new markets and expand into existing ones when a relationship of trust and transparency is established through clear reporting.
- Cost-cutting: Executing ESG effectively can help combat rising operating expenses (like raw-material costs and the true cost of water or carbon), which can affect operating profits by as much as 60 percent.
- Less intervention: A stronger external-value proposition can enable companies to achieve greater strategic freedom, easing regulatory pressure and even engendering government support.
- Financial optimisation: A strong ESG proposition can enhance investment returns by allocating capital to more promising and more sustainable opportunities.
For your prospective employees
It comes as no surprise that employers with highly satisfied employees score 14% higher on ESG performance. A solid ESG stance can help companies attract and retain top-draw employees, lift staff morale, motivation and productivity, and this satisfaction translates into shareholder returns. At the end of the day, it’s an attractive point of difference for any business in a flooded employment market.
Our ESG and Finance flyer is a fantastic resource if you want to learn more.
How to measure ESG performance
ESG metrics are increasingly important to investors, regulators, business partners and consumers when deciding who to align with. But what are ESG metrics? What do they look like, and why are they important?
Metrics inform the creation of your ESG strategy, which is a key benchmark for understanding how a company is operating across the three pillars of sustainability. Some examples of relevant topics include:
- Environment: Greenhouse gas emissions, water management, energy management, waste management
- Social: Employee diversity and inclusion, labour practices, employee health and safety, pay equity
- Governance: Cybersecurity, business ethics, business model resilience, remuneration
Unlike financial datasets that are mostly numerical, ESG metrics can include both quantitative and qualitative information to help stakeholders understand a company’s actions and intentions. Getting your ESG proposition right directly links to higher value creation, however, when it comes to reporting ESG factors, several frameworks exist without a standardised set of non-financial measurements and disclosures. Many businesses have become confused by the reporting process, which led to 120 of the world’s chief corporations backing efforts to create the Stakeholder Capitalism Metrics in 2020 as part of an open consultation.
Despite this challenge, there are several globally accepted frameworks working to create standards and define materiality, which is a fantastic place to start, each with their own specific lens on ESG, depending on your focus and priorities. These include the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), the Task Force on Climate-related Financial Disclosures (TCFD) and International Integrated Reporting Framework (IRF). The United Nations Sustainable Development Goals and the United Nations Principles for Responsible Investment (UNPRI) are also refining a new era of affirmative action through responsible investing.
Kick-start your ESG journey
Your pathway to ESG should consider the following:
- Commitment of leadership: Businesses need to step away from a strategy that isolates sustainability to one team or leader to one that incorporates stakeholders across departments and includes the CFO, CEO and the board. It’s important to ensure everyone is committed to the same goal and that there is alignment across essential matters, including risk, opportunity, efficiency, and financial performance.
- Assess where your company stands: Look at your current operations and see where you can make improvements. What are your most significant environmental impacts? Are there any social issues you could be addressing? What changes do you need to make to ensure good governance?
- Set goals and create a plan: Once you know where you want to improve, you can set specific goals. What do you want to achieve in the short-term, and what are your long-term ambitions? Devise a plan of action that will help you reach these goals.
- Implement changes and track your progress: Put your plan in motion and start making changes in your business. Track your progress over time to see how you’re doing and adjust as grow and learn.
Communicating your ESG credentials
Communicating your ESG performance and what you mean by long-term value shouldn’t happen once a year, but rather, all-year-round. To stand out from the noise and prevailing greenwashing, clear, authentic communication on ESG matters is essential. Let your customers, employees, and investors know what you’re doing to operate more sustainably. This helps build trust and confidence in your brand. Weave your ESG throughout your business values and objectives, along with making it a part of employee policies and onboarding processes from the get-go. Demonstrate the tangible progress you have made and make it a fundamental part of your story, communicated through your key communication channels and platforms. Communicate with end-to-end transparency, so you are publicly accountable to leaders and decision-makers.
Learn from Moir Group’s ESG journey
ESG, in one way or another, has always been integral to Moir Group’s moral compass. Since starting out in 2006, Stephen and his growing team have made workplace satisfaction a priority, while integrating sustainable practices in the name of the planet. “Our world is changing rapidly, and we believe that action cannot be delayed,” says Kelly Patti, Moir Group’s Financial Controller. “Businesses are in a position to make a positive and meaningful difference for the future of society. That’s why ESG informs all parts of our work, from our interviews with potential employees, through to the onboarding process, to the suppliers we use, to the events we hold with industry experts, to our internal behaviours and the very values that underpin our day-to-day work.” There have been numerous challenges and resistance along the way, particularly prior to COVID-19, but Moir Group has learnt to push forward, regardless. Following the 2019/2020 bush fires, we were approached with many ESG regulations and from that point on, we have made ESG a frontrunning concern.
Final thought
Moir Group regularly runs discussion groups and webinars on ESG topics, as part of our support for finance professionals throughout their careers. Don’t miss out on our next event.
