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ESG strategy: why you shouldn’t let it slip now

Scott Wilson Scott Wilson

Too busy to think about ESG? Scott Wilson outlines how to develop your environmental, social and governance (ESG) strategy in a way that delivers value to your business.

Right now, many business leaders just want to focus on their core business. And who can blame them, with the enormity of the pandemic and the geopolitical situation, and the associated cumulative inflationary pressures being felt in energy costs and an uncertain economic outlook.

But there is a growing consensus that embracing ESG issues makes sound strategic and commercial sense. Here's why it shouldn't get lost from your list of priorities, even in the current tough operating environment.

Rethinking ESG's benefit to your business

Setting and achieving ESG goals for your business can be seen as incremental or a burden – but it shouldn’t be. Our experience is that ESG work should be seen as simple good business practice. Not only can using an ESG frame help a business develop better risk management, but it is often a lens for:

  • driving costs down
  • improving profitability
  • attracting finance
  • improving employee attraction and retention
  • increasing brand attractiveness and customer loyalty.

Our recent Business Outlook Tracker research indicates that 92% of mid-market leaders in the UK agree with the concept that a robust and well communicated strategy around ESG factors contributes to their company’s value.

So what can be done to secure this value for your organisation?

Developing an ESG strategy – eight questions to ask

1 Do you know what your competitors are doing from an ESG perspective?

2 What opportunities could ESG bring to your organisation and how can you take advantage of them?

3 What ESG regulations affect you directly and which might your customers want to pass down as a condition of doing business with them?

4 Are you confident about the long-term sustainability of your supply chain and its resilience to short-term shocks?

5 Do you have a plan to reduce energy usage and emissions across your supply or value chain and achieve net zero ambitions?

6 Do you know how to improve and measure how included and engaged your people feel at work?

7 Do you know about sustainable finance and how you could attract financing into your business?

8 Are green tax policies likely to impact profitability or change the economic viability of your supply chain footprint?

ESG opportunity: use it or lose out

When faced with the market challenges we're all experiencing today, ESG-driven benefits are more relevant than ever. How can you capture these benefits and avoid missed opportunities?

Knowing where and how to focus on those one or two ESG topics most relevant to your business and stakeholders is critical to success and value creation (and often value preservation). Once identified, these value-adding ESG areas – and the opportunities that arise from them – can be embedded into the core business strategy, setting a path that supports growth, viability and brand attractiveness.

Without this focus, you may lose out on benefits that your competitors may secure instead. The mindset of ESG as a distraction or a ‘nice to have’ will only be reinforced. Both represent an opportunity lost.

The mid-market today is where larger businesses were a few years ago, albeit with different stakeholder pressures (less regulatory pressure, for example). And with the intense pressures of day-to-day management and a lack of resource, it's unsurprising that ESG isn't always seen as a priority topic by all mid-market business leaders. However, given the benefits larger businesses have seen (see below), this mindset could see lost opportunities for growth and put competitive advantage at risk.

Lessons from larger international businesses

For the largest international businesses, ESG isn’t optional. Regulation and reporting standards, lender and investor pressure, consumer sentiment, and (for many) the demands of employees are pressures making the ESG agenda impossible to ignore.

Scepticism around ESG adoption was high in the past. But now that the ESG landscape is coalescing around globally common reporting standards, and significant capital is flowing into business models with ‘green’ credentials, this is changing. There's an increasing realisation, through experience, that an effective ESG strategy can be the ‘right thing to do’, as well as being a conduit to stronger profitability and business resilience.

For example, in a 2020 report by McKinsey on The ESG premium: new values on perspective and performance, 83% of C-suite leaders and investment professionals expected ESG programmes to add more shareholder value in five years than today. They also suggested they'd be willing to pay around 10% more for a company with a positive ESG record than a negative one.

And research on the return on sustainability investment (ROSI) by the Harvard Business Review has found that ESG is becoming key to corporate resilience and competitiveness. It identified nine drivers of corporate financial performance from ESG strategies. It added that this creates "a competitive moat for business leaders by driving operational efficiency, innovation, employee engagement, supply chain resilience, risk mitigation, improved sales, and other strategic business benefits” (ESG Reports Aren’t a Replacement for Real Sustainability, HBR, 2022).

Your ESG strategy framework

Doing the right thing through an ESG lens is increasingly a core business imperative. To get started:

  • identify your priorities and sense check them with those stakeholders who drive value in your business
  • gain clarity on what your competitors are doing to ensure you're not missing out on opportunity
  • respond to the needs of your customers – particularly if you have larger corporate customers who expect you to be following their lead as a condition of doing business with them
  • embed those one or two key priorities into your strategy, selecting metrics, targets and KPIs to help you monitor progress and secure value
  • develop your ESG roadmap to bring the business change that is required to remain competitive.

To get support with ESG strategy development and help secure tangible value from your ESG agenda, contact Scott Wilson.

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