Industry Insights

ESG and Value Creation

Posted by John Wills on May 24, 2023 2:43:08 PM

ESG refers to the Environmental, Social, and Governance factors that companies need to consider in their operations and decision-making processes. Employee engagement, recruitment, and retention are all heavily impacted by ESG, and it has been found that companies which prioritize these ESG factors are more likely to attract and retain top talent.

Employees want to work for organizations that align with their values.

Strong ESG policies and practices tend to lead to a more positive stakeholder-facing reputation, helping to keep current clients, whilst attracting a new type of customer or investor. The signs suggest that expertly-implemented ESG policies can be a great indicator of long-term success and value creation.

In this article, we will explore five key areas of ESG:

  • What is the public perception of ESG?
  • Does ESG promote profitability, productivity, and cost reduction?
  • How to win buy-in for your ESG policies?
  • How do employees respond to the focus on ESG?
  • How can employee training help with ESG?

What is the Public Perception of ESG?

The public perception of ESG didn’t get off to the best of starts back in the 1960s, when it was seen as a form of “socially responsible investing”. At that time, investors were far more interested in profits than the planet, so it has been somewhat slow going for the ESG movement. Fortunately, over the past couple of decades, there has been a serious mentality shift.

The public perception of ESG in recent years has been on a positive trend, with consumers, investors, and employees largely concerned about the impact that businesses have on society and the environment. These same individuals also want to form collectives or be part of organizations that prioritize ESG factors. Businesses have had to meet these needs, introduce strong ESG policies, clean up their act, and find ways to become more progressive in order to win public favor.

It’s not just the public that wants businesses to clean up their acts – governments are on the case too. Regulatory pressure has reinforced the need for businesses to embrace ESG, and businesses who can get ahead of the regulations are seen to win public favor for not making changes just because government bodies demand it.

The public perception among those who know about ESG can be deemed as good, but public awareness among the general populous is low. This places the responsibility in the corner of businesses, who need to go further when communicating ESG practices, initiatives, and policies, to help them be better understood by their stakeholders.

Does ESG Promote Profitability, Productivity, & Cost Reduction?

Absolutely, these are key aspects of ESG policies, at least, from the perspectives of businesses who know they need to implement them but need to ensure that they work within their business models too. Here are four ways that ESG improves businesses:
  1. Risk Mitigation: When a business effectively considers ESG factors, they are able to identify and mitigate risks that come with financial dangers, such as environmental fines, legal action, reputational damage, boycotts, or strikes
  2. Operational Efficiency: ESG may help a business to reduce energy or waste, use their premises more effectively, or introduce fleet management techniques, as a few examples. All of these have positive operational results
  3. Employee Engagement & Productivity: Aligned employees work harder, pushing in the same direction as the business to make positive contributions to society. When an organization has a lot of buy-in from its staff, it becomes a more attractive place to work, meaning retention and acquisition of the best talent improve, growth is boosted, and morale increases
  4. Investor Demand: Whilst ESG might not have inspired too many investors in the 1960s, it has become a key driving force in major investment decisions over the last decade or two. This has now reached the point where investors are willing to pay a premium for sustainable and responsible products and services that can fill a growing demand in the market. More demand, of course, can lead to more profit

How to Win Buy-in For Your ESG Policies?

You’ll need to win support from your employees, consumers, and perhaps from investors for ESG policies. Here’s how to do it:

Employees: Improve the company culture and build it around sustainability, progressive behavior and attitudes, and commitment towards a better future. Drive initiatives, provide training and workshop, reward great behavior, and try to create a sense of ownership and identity among employees for ESG practices and progress.

Consumers: It’s all in communication, transparency, and marketing. Share performance data, create stunning videos and presentations, put out interesting information on social media, and grow a community through the good work being done. Find logical ways to connect your ESG work to the company mission.

Investors: Credibility and transparency are key to winning support from investors, who need to see that the robust ESG policies and practices are being tracked and reported in a clear and consistent way. These stakeholders also want to see that third parties are providing certifications, measurements against competitors are available, and ideally, awards are being won.

How Do Employees Respond to the Focus on ESG?

Who wouldn’t want to work for a business that wants to be more sustainable and contribute more to society? ESG policies and practices can help to foster a sense of purpose and engagement among employees who can be part of something bigger through their day-to-day work. These employees will often become more proud of their employer and their collective accomplishments.

It won’t all be plain sailing though. An ESG policy needs to be effectively communicated, strategized, and implemented, for it to really grow roots. The resources to make it a success need to be made available and training for those who are involved is key. Updates, feedback, and transparency on developments will need to be flat and open, so that it doesn’t end up being another top-down instruction from the boardroom.

If employees are part of the mission every step of the way, they are far more likely to respond well and create more value for the business.

How Can Employee Training Help with ESG?

Here at StratX ExL, we’ve seen firsthand just how important of a role employee training can play in supporting ESG initiatives and policies. Companies can build awareness and understanding of the risks and opportunities, whilst equipping employees with the knowledge and skills they need to implement ESG policies and sustainable practices.

Improved business performance, reduced risks, increased engagement, and talent acquisition are just some of the benefits of ESG. Of course, this journey can be long and difficult, so it makes sense to bring in a team of experts to make sure success is on the horizon and value is being created at every step. At StratX EXL, we can help you design and deliver effective ESG training programs that support your business objectives and build a culture of sustainability. Contact us today to learn more.

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