ESG: A New Buzzword for Sustainability
Times are changing for modern businesses. Emerging environmental laws, increasing pressures from partners and the need to uphold your company’s reputation mean that businesses must now put ESG at the forefront of their practices.
According to the CBI, two-thirds of investors consider ESG factors when investing in a company, whilst Recycling Lives reports that 81% of consumers prefer to buy from sustainable retailers. This highlights the important role of the environment and the community when growing your business.
With such a huge emphasis now on ESG, it’s important to understand what ESG is and how it can benefit your organisation, helping you to stand out from the crowd and ensuring long-term growth.
What is ESG?
ESG, which stands for Environmental, Social and Governance (ESG), is a set of standards used to measure an organisation’s impact on the environment and society, in addition to how transparent and responsible its governance is in terms of company leadership, shareholder rights, audits and internal controls.
Implementing an ESG strategy allows you to assess and update your company’s goals to ensure they positively impact the environment, the community it operates in and the people it employs, while demonstrating how you’re delivering on them.
ESG is a company-led strategy that focuses on the whole picture of protecting the planet and its people, rather than just your financial bottom line. Nonetheless, those with a higher ESG rating are generally more financially successful than those without.
To help you better understand ESG, we’ve taken a look at each individual element, including how they work side by side and synergise with your wider business strategy.
The 3 pillars of ESG
The environmental part of ESG is centred around how a business reduces its environmental impact. It encompasses its products, services, supply chain and operations.
Examples of environmental practices include:
- Developing sustainable products and services
- Cutting energy consumption and using renewable energy sources
- Switching to net zero waste products, sustainable packaging and biodegradable materials
- Encouraging recycling and reducing waste
- Promoting staff participation: walking and cycling to work, implementing more environmentally friendly practices
Social focuses on a business’s workplace culture and influence on wider society, whether that’s positively contributing to your local community or wider society, investing in equal opportunities, or better working conditions in the supply chain.
Examples of social practices include:
- Delivering training, as well as health and safety and wellbeing support
- Increasing internal communication through regular newsletters and business updates
- Offering equality and diversity in the workplace
- Investing in local community projects
- Supporting local or national charities with fundraising
- Stopping abuse within the supply chain, such as modern slavery and labour rights
The governance aspect is centred around the decision-making process, reporting, and the logistics of running a business. It also includes how ethical and transparent a company is with its stakeholders and any governing bodies.
Governance is associated with the environmental and social aspects of ESG as it focuses on the transparency and decision making behind them; it is the “why” behind the “how”.
- Accurate reporting to stakeholders on financial performance, strategy and operations
- Ensuring diversity in leadership teams and being open about pay
- Ensuring leaders and managers are accountable for risk and performance management
A quick roundup
Air and water pollution
Green energy initiatives
Fair labour practices
Employee gender and diversity
Health and mental wellbeing
Diversity of board members
What are the benefits of ESG?
- Competitive advantage: improved reputation and business ethics
- Reduced costs: improved operational efficiencies mean less waste and higher performance
- Creates sustainable growth: ESG-aware investors are concerned with long-term growth and will maintain investment in sustainable, value-led companies
- Better recruitment opportunities: attract a higher number of quality candidates for roles whilst facilitating higher long-term retention
- Creates a resilient supply chain that helps to mitigate business risk through training and performance measures
Integrating ESG into your company can help improve brand recognition, loyalty and even improve your reputation. It shows that you have a transparent plan in place that aims to reduce your environmental impact, support diversity and equal opportunities, and turn ethical business decisions into decisive, sustainable actions.
Implementing an ESG strategy allows companies to track key metrics such as energy consumption, water consumption, waste shipping/treatment costs and raw material use. This results in delivering policies that improve energy efficiency which ultimately leads to lower costs associated with energy and water usage, as well as waste transport.
Examples include switching to LED lighting, motion sensor lighting and other eco-friendly practices to cut overheads.
Attract and retain employees
Many employees seek to work for more environmentally-conscious companies that are dedicated to executing ESG policies. Workers, particularly millennials, want to be associated with companies that adopt a diverse and inclusive workplace with support programmes for employees’ mental wellbeing and an improved work/life balance.
Working for a company with strong ESG goals will ensure they feel appreciated and able to make a positive impact, ultimately leading to stronger work ethics, higher retention and better results.
Today’s consumers are increasingly aware of ethical spending and seek to purchase products from ethical brands that care about what they stand for, regardless of cost.
Recent research conducted by SmartestEnergy revealed that 81% of consumers are more likely to choose brands that have a positive approach to sustainability. This finding is backed up by Deloitte, who have also found that businesses need to promote their environmental activities more clearly.
More attractive to lenders and investors
Attracting the attention of investors and lenders is one of the biggest advantages of having an ESG strategy. Many studies have shown how those with an ESG program stand out to both investors and lenders as they generally outperform their competition.
What’s more, ESG is more commonly being included as a criterion to decide which companies to invest in. In real terms, businesses that neglect or overlook ESG within their business strategy risk being unable to secure loans or raise funds to secure future growth.
Supply chain prospects
Improving your ESG credentials goes further than your four walls; it includes the activities that take place upstream and downstream from you, such as your supply chain.
The choices your business makes for its supply chain have an impact on the environment, on people, and on wider society. This can influence investors, as they will often seek to partner with organisations whose ethos and goals are closely aligned with their own.
For example, many retail stores no longer stock products from brands that are considered to have low ESG performance, instead choosing Fairtrade or other ethically-sourced goods or giving the sustainable products greater prominence. At a B2B level, businesses with good ESG credentials are viewed as lower risk in the short-to-medium term, and better equipped for future market uncertainties in the longer term.
While sustainability may not currently be the top agenda for everyone, this is likely to change in the near future as those who fail to act now may face substantial financial and business impact in years to come. The benefits of implementing an ESG strategy go hand in hand with ensuring business growth and improving financial performance beyond the next financial year, meaning that it should be incorporated at the heart of your business strategy.
Crown Oil’s ESG strategy
At Crown Oil, we’ve implemented an ESG strategy as part of our drive to reduce our overall environmental impact while positively contributing to our local community. We’ve practiced what we preach, adopting sustainable business practices and making substantial changes to our daily operations to reduce our environmental impact in a way that benefits both our local community and wider society.
We’ve even taken steps to be as transparent as possible about our activities, to showcase how a business can make sustainable changes that have a lasting impact – check out our dedicated sustainability website for more information!