What is ESG?
ESG stands for environmental, social and governance. It is a framework for measuring a business’s impact on the world and is increasingly a strategic priority for businesses.
Larger UK companies are now required to report on their ESG commitments - that includes publicly listed businesses, those with more than 500 employees or an annual turnover of over £500 million But ESG isn’t just for big organisations; a robust ESG strategy can benefit companies of all sizes -including small and medium enterprises (SMEs).
However, research shows that whilst some companies have - or are planning for - an ESG strategy, just eight per cent of businesses have a ‘fully realised strategy’. We take a look at the business benefits and why the environmental pillar is critical.
What are the benefits of an ESG strategy?
A robust ESG strategy is good for the whole company. It supports departments from human resources through to accounts, marketing and public relations.
Key benefits include:
Human Resource Benefits
- Talent draw – businesses that demonstrate ESG commitment are more attractive to potential employees, especially younger workers. One in three 18 to 24-year-olds has declined a job where the business ESG values did not align with their own
- Employee retention - 71 per cent of employees believe that sustainable companies are more attractive employers
- Higher employee engagement - companies with ESG programmes report increased productivity
‘An effective ESG strategy not only ensures the long-term sustainability of acompany, but also helps attract and retain top talent, helps reduce business risks, while creating positive societal and environmental impacts.’
Neil Smith, Strategic Director, Sustainability reporting specialists, Koan Group
Financial Benefits
- Increased profitability – businesses with an ESG strategy are 23 per cent more profitable than peers
- Access to capital – lenders are increasingly evaluating a business’s ESG approach and may offer improved terms
- Investment prospects – 74% of investors assess ESG when extending finance. Institutional investors also place ESG-related outcomes in their top five priorities for businesses
- Improved efficiency - cost reduction through lower energy consumption and resource optimisation
- Reduction in regulatory and legal interventions which decreases potentially costly non-compliance fines
Brand Reputation
- Customer perception – solid ESG credentials are important to many customers who are also willing to pay more for ‘greener’ products or services
- Demonstrates a forward-looking approach - helps futureproof the business and ensure it remains ahead of future regulatory requirements. 74% of CEOs cite ESG as being of equal importance to financial performance.
- Risk reduction – ESG helps businesses identify and stay ahead of risks and potentially negative brand impact
Why 'Environmental' is a priority?
Creating a comprehensive ESG strategy can be resource intensive, so it is vital to prioritise the most critical areas for your business.
The ‘environmental’ part of an ESG strategy is crucial for many organisations due to its importance to both internal and external stakeholders. Plus, KPMG figures suggest that cutting carbon emissions yields the biggest financial benefit within an ESG programme.
Creating a credible green strategy
Environmental commitments should be based on solid,measurable actions to avoid ‘greenwashing’ (misleading information about a business’s environmental actions which can negatively impact the brand).
‘To avoid ‘greenwash’ you need sustainability credentials and reporting that supply chains, investors, lenders and customers can trust. These credentials will vary from sector to sector, but the standards must be consistent and provide clarity and purpose.’
The British Vehicle Rental and Leasing Association
What should a business environmental strategy include?
Components of the strategy will clearly vary but areas to consider include:
- Energy usage and utilisation of renewable energy
- Pollution impact
- Waste management including recycling
- Sustainability of supply chain / partner organisations
- Travel policies
- Carbon footprint including vehicle fleet emissions
Next steps
Want to find out more about implementing an ESG strategy? Download our recent ESG whitepaper.
Looking to kickstart your strategy with fleet electrification? Gofor is here to help. Our friendly team offleet experts can provide practical advice on getting started.
