What ways does ESG create value for organizations?
- Promotes top-line growth
- Substantially reduces costs
- Lessens regulatory and legal risks
- Attracts and retains quality employees — and improves productivity
- Optimizes investment and asset management
Any business, regardless of its industry, is deeply intertwined with environmental, social, and governance (ESG) concerns. They are so entwined that ESG investments have accelerated immensely, with global sustainable investment now topping $35.3 trillion—up tenfold since 2004.
These numbers show that ESG is much more than a fad, but rather, an important strategy to safeguard a company’s long-term success. But even as the case for following such a strategy becomes more compelling, the understanding of how it creates value for a company is much less understood.
In this article, we cover the five ways that ESG creates value for organizations:
Promotes top-line growth
A strong ESG strategy can help your company tap into new markets, and expand into existing ones. This is because ESG helps build up your organization’s social capital, which in turn helps you earn trust from both governing authorities and communities.
With this trust, you are more likely to be awarded approvals and licenses that afford your company fresh growth opportunities. Studies support this, showing that companies with extensive social engagement projects resulted in higher valuations by the public, compared to their competitors. This allowed them to easily extract new resources for entering or expanding into new markets, without operational delays.
In addition to this, ESG is also known to drive consumer preference. Many people nowadays are willing to switch brands — and even pay more for the same product — in attempts to “go green.” Recent surveys found that more than 70% of respondents were willing to pay 5% more for a green product, over a non-green alternative.
Substantially reduces costs
ESG strategies can also help you substantially improve your bottom line, as they help combat rising expenses — particularly those associated with material usage and the true cost of utilities.
The notion that moving towards environmentally-positive operations, such as switching to renewable energy, is inherently more expensive is outdated. Nowadays, eco-friendly options are widely available and reasonably priced and offer many advantages.
Renewable energy sources, for example, are now priced much lower than in the previous decade. For instance: electricity from solar power plants used to cost $359 per MWh in 2009, but within one decade, this cost declined by 89%. These sources are also known to be leagues cleaner and safer, making them ideal for many companies.
Companies who opt for these typically end up spending less, as they reduce their usage and boost efficiency. Resource efficiency, of course, results in improved financial performance in the long run.
Lessens regulatory and legal risks
At the start, ESG concerns pushed governments to offer generous subsidies for companies willing to invest in decarbonization efforts. Nowadays, however, this is a must for all companies, evolving into penalties, red tape, and license revocations for many. Regulatory pressure to reduce carbon footprints now exists in every sector.
Following ESG principles could help ease such pressure from your company, and even reduce the risk of adverse government action. In the long run, it could foster government support.
Attracts and retains quality employees — and improves productivity
Clean investors are not the only group of stakeholders who care about ESG initiatives — potential employees do, too. Businesses that are proactively pursuing socially important matters, such as diverse workplaces, environmental protections, fair governance, labor practices, and more, are better positioned to attract talent. Furthermore, they’re more likely to retain the talent they already have.
A strong ESG strategy does this by uplifting motivation and morale in employees by instilling a sense of purpose. By knowing their efforts contribute positively to society and the environment, they are more likely to react with enthusiasm and feel more fulfilled in their work. As such, ESG helps to improve employee productivity overall.
Just as this sense of higher purpose can drive your people to perform at their best, a weak ESG strategy can drag productivity down. The most glaring examples are labor actions, such as strikes, which can happen when your employees are displeased with your organization. Thus, companies that invest in their ESG efforts are more likely to maintain stability, as well as retain a talented and productive workforce.
Optimizes investment and asset management
Investing in ESG requires companies to dedicate themselves to significant cost commitments. However, it is important to know that this will result in sustained value generation over time.
This is because a strong ESG strategy will help your business allocate capital to more promising and sustainable opportunities in the long run — such as renewable energy sources, green production practices, and much more.
By shifting your investments away from short-term returns and towards sustainability, you can protect your company from enormous climate-related sinking costs, and pursue “clean” investments long into the future.
ESG strategies are increasingly becoming adopted by companies across various sectors — quickly placing them as the standard for businesses everywhere. This is because there are multiple ways that ESG creates value for organizations, and more and more players are becoming aware of its value in long-term profitability.
To learn more about ESG, and how to incorporate it into your organization’s strategy and core message, contact Science Park of the Philippines (SPPI). We are the foremost developer of industrial land in the Philippines and have the resources and infrastructure you may need to help link your company’s ESG priorities to value.