In the past, corporate social responsibility (CSR) was the go-to initiative for tracking issues relating to all things environmental and ethical. But it was often backward-looking and something of an afterthought. Today, Environmental, Social and Governance (ESG) reporting has mostly replaced CSR and is fast becoming the preferred way for investors to look at suitable business opportunities.
As wider societal attitudes have started to shift to being more environmentally and socially aware, the importance of how a business acts across all three pillars of ESG has become more important to consumers, regulators, investors and other stakeholders.
The importance of ESG to an organisation’s business operations, internally and across its entire supply chain, will significantly increase in the coming years, especially as the supply chain (Scope3) becomes more of a focal point of measurement. An increase in importance will, no doubt, create an increase in demand from consumers and stakeholders for businesses to be transparent. Organisations that are reporting on ESG, through effective tracking and monitoring tools and technology, are able to build an effective ESG strategy which helps attract both investors and consumers (who will see them as a safer investment than companies without one).
Connecting ESG with risk management
The increased emphasis on ESG has accelerated the need to combine risk reporting as companies identify a wide array of risks that need to be managed. Risk management strategies need to be adjusted to incorporate ESG reporting and so will other business practices, documentation and, potentially, even some supplier relationships. With stakeholder engagement and a properly planned and implemented Environmental and Social Action Plan (ESAP), organisations will be better placed to increase their ESG ratings which could make them more enticing for investors. There are a number of other key benefits to utilising ESG as a risk mitigation tool:
- Talent retention and attraction
With 39% of people saying they are happiest at work when they’re looking forward to a work environment and with happy employees being 20% more productive than unhappy ones, the benefits of a happier working environment are clear. Having a strong ESG risk management strategy in place can help you create better health and safety in the workplace and monitor inclusion, diversity and working conditions; all of which can aid a better and happier working environment for employees. What’s more, over 50% of employees say they’d take a pay cut to work at a company whose values align with their own and 59% of Gen Zs would stay longer with a company that has ESG commitments.
- Appealing to Investors
As we previously mentioned, investors are increasingly seeing organisations with high ESG ratings as safe and sustainable investments. According to a recent study, 48% of investors are now interested in sustainable investing funds. Companies that align to an ESG strategy are seen as lower risk to investors who are increasingly recognising a positive relationship between all aspects of ESG and business performance. There are clear benefits that a strong ESG strategy can have on reducing costs, improving business efficiency and profitability, driving innovation and longer-term sustainability and stability.
- No nasty surprises
When it comes to ESG reporting, rules and regulations across all three pillars of ESG are changing rapidly and need to be monitored more closely than ever before. Things like carbon emissions, waste management, working conditions and community programmes will fall under different rules and regulations depending on the sector, location and size of an organisation. It’s clear they are only going to become more important to track. With businesses increasingly expected to report on all areas of ESG, an ESG strategy will make disclosing relevant information to the relevant regulatory bodies far easier, ensuring the risk of any fines or legal interventions for non-compliance are greatly reduced.
- Better financial returns
ESG-conscious organisations are becoming increasingly more attractive to consumers who are more environmentally and ethically motivated in their purchasing decisions. In the past five years alone, 85% of consumers have made some effort to become greener, something which is predicted to continue growing in the future. As well as driving consumer demand, ESG reporting can have an impact on a company’s bottom line with sustainable changes; going paperless, reducing reliance on expensive fossil fuels or monitoring and updating inefficient energy applications can have a huge positive impact on finances.
How we can help
Our team of experts have years of experience managing risk for businesses across a multitude of sectors and sizes across the globe. With an extensive understanding and knowledge of risk across all elements of businesses – from internal risks to supply chain risks and beyond – our advisory team can work with you to create a bespoke strategy.
With our flagship product, Sustainion, you can manage ESG across the entire supply chain, enabling you to automatically collect and aggregate data from multiple sources to reduce risk at multiple points across your business. Once the data is collected it can be mapped against regulatory reporting requirements and ESG frameworks so you can report and act on all the data.
With our risk analytics and easy-to-use reporting tool, you’ll have ongoing, real-time data that you can use to monitor and track KPIs and changes to risk as they happen.
We believe the best data is data that you can understand and use. Our team of advisors can guide you on what your data means for you and your business, giving you actionable insights that are designed to track trends, protect your reputation and provide you with the peace of mind and security that you’re doing the right thing.
Talk to our team today to discuss how we can help.