How Does ESG Affects Businesses?

All businesses as we have emphasized before are based & constructed upon the people, the protocols & the planet we live on. It is therefore only natural to say that businesses are intertwined very closely with the said ESG criteria. A strong ESG base for a business can create tremendous value.

We will shortly talk about it, but first, let’s understand briefly what these basic criteria of ESG are:

Environmental

The E in ESG is all about the Environment. A company doesn’t run in thin air, it uses power & generates wastage & carbon footprint- this is true for any and almost all kinds of businesses. In this day and age of climate change, it becomes imperative that one tracks their input energy & outputs for better designing of balanced redressals like buying carbon offsets for example. All major economies are now shifting towards a climate change redressal, climate change is very real and we should all be responsible for it.

Social

The second criterion is Social, the S in ESG. Any business or any set-up for that matter is not devoid of people, mainly it is developed, run & managed by people. In addition to that, we live in a society and therefore we have some sort of responsibilities towards it. Your company must build a reputation that aids this segment of the ESG compliance, it also has multiple benefits like employee motivation is safeguarded which implies employee retention which suggests a successful business. Globally, many initiatives have now headed over in the direction of Sustainability. For example, the EU ESG draft by law asks the suppliers to be checked for human rights & environmental ethics.

Governance

The G of ESG entails the Governance bit that all companies must follow and adhere to. There are certain national & international policies that all businesses should abide by the law, then there are other ethical segments like nurturing transparency between collaborators & vendors, and maintaining a transparent intent towards partners & protocols. This ensures the hassle-free functioning of the businesses. Every company should understand that they themselves are legal setups & therefore must comply with norms & policies.

The ESG elements are individual in nature but are also intertwined with each other

For example, the social criteria are not devoid of the development towards the environmental criteria. For instance, if you initiate a plantation drive through your company, you are in a way raising awareness & enhancing the way of thinking for your people, the initiative itself will bear fruits & will cater to the well-being of the whole society. Thinking like this, of ESG as conditioning that should be learned, should be improved upon is an approach towards success. If you think of ESG Compliance as a task or a law, it starts to inculcate a feeling of fear & is averse to progress in general.

One of the major global investment firms, Blackrock has completely shifted towards the ESG standards. In one of his annual letters to the CEOs, Larry Fink suggests that,

“The ability to manage environmental, social & governance matters & demonstrates the leadership & good governance that is so essential to sustainable growth.”

(Source: NASDAQ)

Let us now delve deeper into the value creation of ESG for businesses today

The Way ESG Affects Businesses

The key to thinking about this in the right manner is that the positive linkages that we will discuss as sourced from ESG conversion are not systematic in nature, they are not interdependent on each other and they in no way will appear for all companies at once. Sustainability is a process of adaptation, it grows as you grow. Having hefty expectations will affect your attitude towards sustainability, which in turn will adversely affect your company’s growth.

Sustained Unhindered Growth

ESG norms are becoming strong every day as many countries are now adhering to these policies on a mandatory basis. It is time that businesses develop an outlook & a roadmap for a sustainable future so as to not be caught off guard in the near future.

Cost Reductions

There are multiple benefits that can be drawn from a sustainability conversion. For example, switching to renewable energy resources is pretty cost-effective for businesses. Similarly, there are various parameters on which a sustainable vision of a business can be developed which are also beneficial for the company.

Reduced External Interventions

A sustainable business often settles on unperturbed grounds, it is transparent & up-to-date with all relevant stakeholders’ info, aces in employee retention & gains popularity due to sustainability initiatives and practices inculcated in the business ecosystem.

Employee Motivation

If the workforce is happy and determined to stay engaged with you, this amplifies the productivity of the business in general. Better employee motivation also means improved employee retention. Any successful business thrives on its people, make it ‘happy’ people & the profit shoots up in the air!

Investment Opportunities

The world is shifting towards a sustainable ecosystem, all the major investment firms are also looking for hassle-free sustainable investments. In addition to that many countries have made ESG norms a mandate for business operations, investors from US & UK for example are filtering their choices heavily on ESG charges.

In the coming times, compliance with ESG is going to spread its course globally. It’s better to be prepared, in addition to that we bear responsibilities towards our people & our planet. Enabling a Sustainable approach fulfills the responsibility and also updates us with current global trends.