With ESG becoming increasingly important for businesses across all industries in Australia and around the world, it is vital to create a robust ESG strategy. As a sequel to our latest blog on ESG: what it is and why it should matter to your business, this blog looks at the benefits a strong ESG proposition can have for your business and how to create and implement your ESG strategy.
Benefits of Having a Strong ESG Proposition
According to McKinsey & Company, a global management consulting firm, having a strong ESG proposition as a business comes with several benefits that all link to value creation.
Attract B2B and B2C customers with more sustainable products – some customers are willing to pay to “go green” as long as the product meets the same performance standards as the alternative option. In fact, McKinsey surveyed consumers and found upward of 70 percent said they would pay an additional 5 percent for a green product.
2. Cost reduction
A strong ESG proposition can also help companies to reduce operating expenses, such as raw-material costs, cost of water and/or carbon, by as much as 60 percent. McKinsey also found a significant correlation between resource efficiency and financial performance for businesses across a wide range of industries.
3. Regulatory and legal interventions
Having a strong ESG focus can make your business an attractive contender for Government subsidies and support. It can also enable companies to achieve greater strategic freedom – easing regulatory pressure and risk of adverse government action.
4. Employee productivity uplift
A strong ESG focus can help to attract and retain quality staff – staff who understand the business’s sense of purpose, which in turn motivates them and increases overall productivity. Positive social impact has also been proven to correlate with higher job satisfaction and when companies state they are “giving back” employees react with enthusiasm.
5. Investment and asset optimisation
Businesses with a strong ESG proposition are investing in more promising and more sustainable opportunities. Not only that, but they are also investing in energy efficient plant and equipment, saving them money in the long run. Investing in updating operations may be a large upfront cost now, however choosing to wait may be a more expensive option. McKinsey stated ‘The rules of the game are shifting regulatory responses to emissions will likely affect energy costs and could especially affect balance sheets in carbon-intense industries. And bans or limitations on such things as single-use plastics or diesel-fuelled cars in city centres will introduce new constraints on multiple businesses, many of which could find themselves having to catch up.’ Which is something for all businesses to keep in mind.
8 Steps to Create and Implement a Robust ESG Strategy
Creating a robust ESG doesn’t happen overnight. There are multiple steps with key elements that need to be agreed upon by the company and its key stakeholders. According to Antea Group, an ESG strategy can be separated into seven key steps.
1. Materiality Assessment
Conduct a materiality assessment to ensure you identify, refine, and assess the numerous ESG issues that could affect your business and stakeholders. This assessment will allow you to create a short list of ESG topics relevant to your company which will help to inform the following steps.
2. Know your baseline
Assess any existing policies and metrics currently in place at your company. Ask yourself how these relate back to the ESG topics your business has chosen to focus on? And are you currently partially achieving some of these goals or do you need to build them from the ground up? Knowing your baseline ensures you know what you have to do to reach your ESG goals and how equipped you are to do so.
3. Objectives and goal setting
Now that you know your baseline and target, you can plan out your business’s goals and objectives. To simplify this process, you can split this into 3 key focuses:
Maintain: What you are currently doing that you only need to maintain to successfully achieve your ESG target.
Improve: Aspects of your business that need to be improved to meet your ESG target.
Optimise: What are you currently doing that you can sharpen to move toward industry leadership in ESG?
There is no one size fits all when setting ESG goals and objectives – these need to be suited to each individual company and their industry.
4. Analyse gaps to achieving future state
Once you have completed the steps above you should conduct a “gap analysis” to determine the gap between your baseline and your objectives or goals. This analysis will ensure you are fully prepared and know what resources are required to meet your goals. It also enables you to create a realistic strategy moving forward.
5. Develop a strategic ESG framework
Developing a framework or roadmap that outlines where your business’s vision and purpose meet your ESG priorities can:
- Ensure accountability
- Paints a clear picture of strengths and goals
- Allows you to create a realistic approach
It is key to ensure you develop a framework that takes into consideration all areas of your business, with a clear approach to how you will monitor progress.
6. Set action plans & measure KPIs
Once your framework is complete, you should determine how this will integrate with your business’s practices and processes. Some best practices when it comes to setting an action plan and measuring KPI’s include:
- Identify clear and measurable outcomes
- Use management systems or software to track and evaluate KPI’s
- Regularly review results
- Provide guidance and recommendations to various areas of the business
7. Communicate progress
The structure of your report and how often you report on your ESG strategy progress will be different depending on the type of business you run. The most important part of reporting is to ensure you communicate findings and recommendations in a clear and concise manner. Your report should include:
- Clear communication to stakeholders about the ESG strategy and how this aligns with the business’s objectives
- State any ESG policies that are already in place
- State the company’s ESG goals/objectives and the respective metrics
- Evaluate progress and explain next steps
8. Refresh Strategy
Like any type of strategy, it’s important to continuously update your ESG strategy. This will ensure it stays in line with the company’s vision, mission and values as the business continues to grow and evolve overtime.
Creating a robust ESG Strategy is not something that will happen overnight. It will take a lot of time and dedication from key stakeholders and requires long term commitment to ultimately meet the ESG goals.
When it comes to our service offering at Ledge Finance it is more than just about securing finance for businesses. We take a holistic approach to each business we partner with, providing further assistance through our key partners when necessary.
With ESG becoming increasingly visible across the various lending criteria and the market in general, it’s crucial our clients understand what ESG is but also take the necessary steps to create a robust ESG strategy.
Please note the information provided here is general in nature and does not constitute financial, tax or other professional advice. You should consider whether the information is appropriate for your needs and seek professional advice prior to making any decisions.
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