5 reasons for taking ESG efforts seriously
João Simões de Abreu, March 04, 2022
Environmental, Social, and Governance (ESG) have become key factors to forecast the success of an organization’s operation in the future.
Even if it does seem contradictory, since – at first sight – greener policies seem to require more investment from companies, for the most part, there is a direct link between good financial results and sustainability. McKinsey points out that a strong ESG proposition links to value creation in five fundamental ways:
- Top-line growth – attracting more customers (B2B and B2C) with sustainable products
- Cost reductions – decreased consumptions of materials and energy
- Regulatory and legal interventions – achieving greater strategic freedom through deregulation and avoiding fines
- Productivity uplift – Better talent and employee motivation
- Investment and asset optimization – Allocating capital to more promising and sustainable opportunities
Companies with services and products on the right side of the ESG efforts have become more attractive for clients, employees, and investors. According to a survey conducted by IBM, nine out of ten consumers reported the COVID-19 pandemic affected their views on environmental sustainability.
The survey details that 54% percent of consumers surveyed are willing to pay premium prices for sustainable and/or environmentally responsible brands. Moreover, 71% report environmentally sustainable companies are more attractive employers. Nearly half of personal investors already consider sustainability in their investment portfolios. A further 59% expect to buy or sell holdings in the next year based on environmental sustainability factors.
An Oxford University report that explored more than 200 academic studies and sources dealing with sustainability to comprehend the connection between corporate social responsibility and profitability also found that responsibility and profitability are not incompatible – in fact, they are complementary. The report can be resumed in three significant figures:
- 90% of the cost of capital studies show that sound Environmental, Social, and Governance (ESG) standards lower the cost of capital
- 88% of the studies show that solid ESG practices result in better operational performance
- 80% of the studies show that good sustainability practices positively influence stock price performance
To capture the attention of potential employees, clients, and investors that are increasingly on board with sustainable practices, the world has seen a rise of organizations setting sustainability goals and promoting their green practices over the past few years. Unfortunately, however, part of the corporate world often does not walk their talk – it seems to be filled with good intentions but empty in actions.
The public is more aware of this and is calling out such practices as “greenwashing” – an unsubstantiated claim to deceive consumers into believing that a company’s products are environmentally friendly. The better the marketing efforts and targeted messages, the harder it gets to know who is doing actual good or conveying a false impression. Unfortunately, as the metaphor goes: “one bad apple can spoil the barrel”. It is no longer good enough to pinpoint a year in the future when a company will become entirely sustainable.
To fight the bad apples (and show the world they are on the right side of the efforts), organizations must start reporting their initiatives by using transparent and frequent results of their actions. For decades, Quidgest has helped organizations thrive by using management systems to promote better decision-making, quickly issue reports, and save resources. We are now deploying new and fascinating products to enhance the organization’s efforts to become more aligned with sustainable practices and report them frequently.