ESG: There’s More to Doing Business Than Profit
Is the main purpose of a business to make a profit? You would be forgiven for assuming so. But this short-sighted view overlooks the driving force behind these all-important financial gains: the consumer. Profit is a by-product of understanding the consumer and giving them what they want – and their requirements are evolving. Today’s ethically conscious society demands products and services that put people and the planet ahead of profits. This has prompted the emergence of a commitment to invest in environmental, social, and governance (ESG) issues – from CO2 reductions to diversity in the workforce.
It’s not just consumers who are informing their decisions based on ESG credentials; modern businesses must meet the ethical standards of all stakeholders: investors, employees, suppliers, regulators, and the community. From consumers choosing brands based on their ethical responsibility to investors favouring businesses with robust environmental frameworks, ESG credentials have become a business priority and opportunity that can create long-term value and growth.
ESG was first mentioned in the United Nations Principles for Responsible Investment report in 2006. Since then, it has evolved from a box-ticking exercise into the bedrock of a business’s social and environmental philosophy. To prosper amid this ethical revolution, they must make satisfying these moral metrics a priority.
To adopt a comprehensive approach to ESG that creates long-term value for all stakeholders, businesses need the right people to drive it. So, who are the biggest ESG advocates in an ethically conscious business?
Governance of environmental and social issues starts at the top with the board. They must set the tone for managing these factors by providing the foundations on which the business can build the rules, guidelines, and processes that employees – whose responsibility it is to take ownership of these initiatives – follow. This oversight is a cornerstone of the ESG programme: a strategic plan that harnesses market opportunities and addresses material risks by aligning ESG issues with the business strategy.
There's a new kid on the C-level block amid the emergence of ESG as a business priority: the Chief ESG Officer. Businesses that appoint this contemporary member of the C-suite reassure stakeholders that they take ESG seriously – and aren’t simply paying lip service to it. The benefits of appointing a Chief ESG Officer are compelling, including:
- Establish robust channels of communication with stakeholders
- Oversee effective reporting and voluntary disclosure
- Provide ESG with a strong voice at the top table
- Help incorporate ESG into the business strategy
- Develop a framework to tackle the most important ESG issues
The ESG Manager is responsible for implementing related policies and procedures that have been developed in partnership with the board, senior executives, and employees. Their responsibilities within this framework are varied, including:
- Articulate an ESG strategy that’s aligned with the business strategies and goals
- Oversee environmental and social impact assessments
- Engage will all stakeholders – internal and external
- Prepare ESG reports for stakeholders and the board
- Manage due diligence on all ESG-related issues
Embedding ESG into a business’s values will foster – and demonstrate – a strong, companywide commitment to it. Achieving this top-down and bottom-up ESG culture requires employee engagement through effective communication. For example, policies and procedures developed in a boardroom without consulting the wider business leave employees – the people impacted by them daily – unwilling to embrace them. Even if a business develops constructive ESG policies through holistic collaboration, without effective channels of communication the message will be muted, and employees will remain disengaged.
Engaging employees at every level of the business is the responsibility of its ESG champions – from the board to the ESG manager. By demonstrating a commitment to ESG issues, the business will also become more attractive to prospective employees, creating a more skilled and experienced talent pool.