The benefits of adopting ESG and how to get started

15 March 2024 6 min. read
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There is mounting evidence that ESG can act as a catalyst for business growth, on the back of improvements to brand reputation, financial performance, and investor appeal. Craig Lee, partner at Kinetic Consulting, explores some of the key benefits of embracing ESG and how businesses can get started.

By incorporating ESG considerations into their operations and decision-making processes, businesses can enhance their sustainability footprint, social impact and contribution to local communities.

Alongside contributing to ESG pillars, the practice of shifting to more sustainable practices also drives long-term value creation, among others through improving financial performance, mitigating risks, enhancing reputation, and boosting brand recognition and value.

The benefits of adopting ESG and how to get started

Craig Lee is partner at Kinetic Consulting

Benefits of ESG

Establishing and tracking ESGs can bring many benefits to businesses. These benefits include:

Enhanced reputation
Businesses that establish and track ESGs can enhance their reputation among customers, investors, and other stakeholders. This can lead to increased customer loyalty, improved investor confidence, and better relationships with regulators.

Improved risk management
By tracking ESGs, businesses can identify and manage ESG-related risks more effectively. This can lead to a lower likelihood of financial, legal, or reputational damage.

Improved operational efficiency
ESG practices can drive operational efficiencies by reducing waste, conserving resources, and lowering costs. For example, reducing energy consumption can lower energy bills and reduce carbon emissions, which can lead to cost savings and increased profitability.

Cost savings
Many ESG initiatives can lead to cost savings over the long term. For example, companies can improve their supply chain management by sourcing raw materials more sustainably and efficiently, reducing waste, and using more efficient transportation methods; businesses that prioritise employee health and safety can reduce costs associated with accidents, injuries, and illnesses.

Improved employee engagement
Employees are increasingly looking for employers that share their values and are committed to positive social and environmental impact. By establishing and tracking ESGs, businesses can improve employee engagement and attract and retain top talent.

Enhanced competitiveness
By establishing and tracking ESGs, businesses can gain a competitive advantage over their peers. Customers, investors, and other stakeholders increasingly seek businesses committed to sustainability and ESG performance.

Access to capital
Companies that prioritise ESG practices can also have greater access to capital, as investors increasingly prioritise companies with strong ESG performance. This can lead to lower financing costs and increased profitability.

Getting started with ESG

There are several examples of how organisations can actively make more ESG impact by applying best practices. A number of examples:

Greenhouse gas emissions
Many businesses are setting targets to reduce their greenhouse gas emissions in line with the Paris Agreement. This may involve reducing energy consumption, switching to renewable energy sources, or implementing more efficient production processes.

Water consumption
Businesses relying on water as a key resource should track their water consumption and implement strategies to reduce water usage. This may involve implementing more efficient irrigation systems, reducing leaks and losses, or implementing water recycling and reuse systems.

Waste management
Businesses should track the amount of waste they generate and implement strategies to reduce, reuse, and recycle waste. This may involve implementing a waste reduction program, using more sustainable packaging materials, or working with suppliers to reduce waste throughout the supply chain.

Labour standards
Businesses should establish and track goals and targets related to labour standards, including fair wages, safe working conditions, and freedom from discrimination and harassment. This may involve implementing a code of conduct for suppliers, conducting regular audits of labour practices, or working with labour unions to improve working conditions.

Diversity and inclusion
Many businesses are setting goals and targets related to diversity and inclusion, including the representation of women, people of colour, and other underrepresented groups in their workforce and leadership. This may involve implementing diversity and inclusion training programs, establishing employee resource groups, or implementing blind resume screening processes.

Community relations
Businesses should establish and track goals and targets related to their impact on local communities. This may involve investing in local infrastructure, supporting local charities and non-profits, or engaging in community service initiatives.

Board Diversity
A diverse board of directors can help ensure that a company considers a range of perspectives in its decision-making, including those related to environmental and social issues. Boards can include individuals with sustainability expertise or a history of advocating for ethical business practices. They should also address the representation of women, people of colour, people of determination and other under-represented groups.

Sustainability reporting
Companies can provide transparent reporting on their sustainability performance, including metrics related to energy consumption, carbon emissions, waste reduction, and social impact. This helps investors and stakeholders evaluate the company's ESG performance.

Executive compensation
Companies can align executive compensation with ESG goals. For example, executives may receive bonuses for meeting sustainability targets or ensuring that the company operates ethically.

Stakeholder engagement
Companies can engage with a range of stakeholders, including customers, employees, suppliers, and communities, to ensure that they are considering the impact of their operations on these groups. This can include conducting regular surveys, holding town hall meetings, and engaging in dialogue with stakeholders.

ESG oversight
Companies can create ESG oversight committees to ensure that environmental, social, and governance issues are being considered in all decision-making processes. These committees can be made up of individuals with expertise in sustainability, ethics, and governance and can help ensure that the company is operating responsibly and sustainably.

Implementing ESG

While establishing and tracking ESGs can bring many benefits, businesses can face several challenges in the road to implementing sustainable policies and practices and embedding a culture that puts ‘green’ at the core of DNA.

Key challenges include lack of standardisation, data quality and availability, stakeholder engagement, cost and resource constraints, greenwashing, and integration with business strategy. To overcome these challenges, and establish effective ESG practices, businesses need to prioritise ESG considerations, establish clear and measurable goals, engage with stakeholders, leverage technology and data, and integrate ESG initiatives with overall business strategy.

By doing so, businesses can enhance their sustainability and social impact and drive long-term financial performance and value creation.