6 Reasons Why ESG Is Good for your Business

6 Reasons Why ESG Is Good for your Business 

Thought Leadership

As Abu Dhabi and the world gear up for COP28, we look at how the ESG framework can benefit not only sustainability at large but the health of your business as well.

As corporate sustainability becomes a critical aspect of business operations, how to reliably assess your company’s sustainability progress and yield tangible business benefits from it? Try ESG reporting.

“ESG,” first coined by the Global Compact in the early 2000s and short for “environmental, social, and governance,” is a set of practices and processes used to measure organisations’ performance on these three pillars, disclose this performance, and, ideally, limit their negative impact on the environment and society at large – from carbon emissions and resource usage to employee well-being and diversity.

For businesses that adopt and practice it efficiently, ESG reporting offers a lot to gain beyond creating value for society and the planet. By allowing you to evaluate your company in a transparent and objective manner, it can help on multiple levels.

  1. Identify and understand potential risks that wouldn’t necessarily show on a financial statement and that, if left unaddressed, could prove detrimental to the sustainability of your business – think potential environmental damage on your operations, for example. This, in turn, allows you to set priorities and develop cost-mitigating strategies proactively, giving you enough time to future-proof your company.
  2. Boost your business’s top-line growth, improve brand reputation, and edge out competition, for example by attracting sustainability-minded customers who, incidentally, are often willing to pay a green premium for all-natural products or for a service with a clear positive environmental impact; or by increasing your chances of  getting the necessary approvals and licences from governing authorities to tap into new markets.  
  3. Enhance your productivity, particularly at the employee level. A good ESG programme helps you not only attract quality employees, but also retain and motivate them to perform better. Positive social impact correlates with higher job satisfaction, and employees are more dedicated to companies that “give back.”
  4. Substantially reduce your costs by using ESG to recognise the opportunities to effectively combat  rising operating expenses such as water, energy, or raw material costs, which according to research by McKinsey, can affect operating profits by as much as 60%. Take 3M, for example. The company has saved $2.37 billion since it introduced its “Pollution Prevention Pays” (3Ps) programme in 1975.
  5. Ensure regulatory compliance to achieve greater strategic freedom and even, possibly, gain government support. According to McKinsey, “typically one-third of corporate profits are at risk from state intervention,” with variations based on the industry. For example, in banking, where provisions on capital requirements and consumer protection are critical, McKinsey estimates the value at stake at 50-60%.
  6. Attract investors who, around the world, are increasingly considering ESG as an important framework for responsible investment. According to PwC’s 2023 Global Investor Survey, 75% of respondents say that “how a company manages sustainability-related risks and opportunities is an important factor in their investment decisions.” However, steer clear of “greenwashing!” PwC’s research shows a massive trust deficit, with a majority of respondents – 94%! – expressing doubt about the reliability of the information presented to them. On the other hand, a whopping 69% of respondents say they would increase their level of investment in “companies that successfully manage sustainability issues relevant to the business’s performance and prospects;” while 67% say they would increase their investment in companies “that change their business conduct to have a beneficial impact on society or the environment.”

The correlation between ESG and businesses’ long-term value, both financial and non-financial, is everywhere to be seen, from a 2022 EY-Parthenon analysis showing that “sustainable companies outperformed their industry peers on gross profit, EBITDA, EBIT and net profit metrics” to an Oxford University study indicating that solid ESG practices resulted in better operational performance for 88% of the companies studied.

And if you’re not convinced yet, keep in mind that doing nothing doesn’t keep you were you are; it’s an eroding line heading straight to failure. So, don’t wait it out, it will only you cost you more.

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