What ESG Means for Your Company’s Future
ESG (environmental, social, and governance) is a set of standards used to evaluate a company’s ethical impact and sustainability practices. Companies are scored according to these standards, which investors can see. At its core, ESG rankings motivate a company to deliver strong returns by basing its business decisions on its environmental impact, how it manages its relationships within and outside of the company, and its approach to governance and decision-making.
Today, customers, investors, and shareholders alike care deeply about a company’s ESG impact so it is practically a business requirement that energy companies should assess and disclose ESG factors. As a result, these groups want answers to questions like:
- What is your policy for responsible investments, such as principles on ESG issues?
- How is the company presented to our community?
- What has the business done to ensure that our ESG-related disclosures are reliable?
With these questions streaming through the door, businesses must ask themselves another essential question: does prioritizing ESG enhance our company’s future, or is this just a temporary trend? In answering this question, there are three realities to consider:
- There is a Link Between ESG performance and Financial Performance
Research regularly shows that adopting strategic ESG practices is significantly and positively associated with both a return on capital and market valuation multiples. For example, the consulting firm McKinsey states that cost reductions are one of the five central values of ESG, and executing ESG effectively can combat rising operating expenses.
- Investors are Driving ESG
Over the past decade, investors have become increasingly ESG conscious. The markets are experiencing an influx of investors more concerned with the environment than growth, and organizations need to keep up. As a result, it’s more important than ever to report accurate ESG data to attract and retain investors.
- Young Talent Cares about ESG
The young talent of today is increasingly ethically aware and willing to act on their convictions. Experts predict Millennials and Gen Z will comprise around 75% of the workforce in the next four years, which makes the importance of demonstrating high ESG performance to accommodate these candidates crucial for winning the war on talent.
It is clear that ESG is a tremendous value driver for businesses, and it is here to stay, especially in the environmental industry. Developing a strong ESG strategy and gathering accurate data will allow companies to establish a competitive advantage and create long-term results in the midst of today’s rapidly changing policies and growing public pressures.