While environmental social governance (ESG) initiatives are increasingly becoming standard corporate practice, some organizations are still hesitant to invest the time and capital required to pursue a comprehensive program. In fact, sometimes securing internal buy-in can be the most challenging part of the process.
Nevertheless, the ESG movement has grown rapidly in the last decade—a trajectory that is expected to continue for years to come. To help you overcome these internal roadblocks, this post breaks down some of the most compelling reasons an organization should pursue an ESG strategy, as well as a few common concerns businesses raise when discussing ESG initiatives.
ESG improves the bottom line.
Key executives and board members are, by nature, focused on the bottom line. Not surprisingly, many question the costs of ESG initiatives and whether they’ll offer any ROI. Given how new the category is this is understandable, but while the costs of creating and implementing ESG programs aren’t insignificant, there are proven financial benefits.
According to consulting giant McKinsey, the top ESG-performing companies grow 10-20 percent faster than competitors. Another recent European study also found that organizations at the forefront of ESG initiatives are seeing 12 percent higher stock returns. Such results should make even the most bottom-line-driven leaders warm up fast to ESG programs.
ESG matters to customers.
Nothing strengthens a bottom line quite like happy customers, and research indicates that people are more likely to purchase products or services from companies with ESG practices in place. In fact, 83% of consumers in a recent study said they would pay more for goods that are ethically sourced.
Another found that about 70 percent of consumers surveyed on purchases in multiple industries, including automotive, building and electronics, would pay an additional 5 percent for a green product if it met the same performance standards as a non-green alternative.
ESG matters to your employees.
It’s often said that a company’s most valuable asset is its people, and ESG programs can help companies recruit and retain the best talent. According to a study from Mercer, a global human resources consulting firm, employers with high ESG scores perform 14 percent higher in employee satisfaction. They are also 25 percent more attractive to prospective talent. It’s no surprise that HR professionals are often passionate advocates for ESG.
ESG leads to new business opportunities.
Another compelling reason to implement ESG strategies is that they can help you land new business opportunities. When vetting whom to award their business to, many companies now look beyond the lowest price or the flashiest branding; they also consider how a company does business. According to Sustainability Magazine, 24 percent of mid-market business executives said there was a “high” risk of losing business, or the eligibility to bid for new business, if their company failed to meet acceptable ESG standards.
ESG reduces the risk of government intervention.
Another concern for organizations without an existing ESG program is the rapid rise of ESG-related government regulations. As a result of this increased scrutiny, hundreds of companies have faced fines for failure to follow policies and procedures related to ESG topics—a number that’s likely to rise as more government watchdog groups prioritize the topic.