Feb 01, 2022 | Conal Love
The business case for environmental, social and governance (ESG) commitments is growing rapidly, with a record $649bn being poured into ESG-focused funds worldwide in 2021.
Legislation such as the EU’s Green Public Procurement (GPP) is placing pressure on businesses to consider and mitigate their environmental impacts. Social value is now a sizeable part of public tenders and conscious consumerism is more prevalent post-COVID.
In the recent episode of the podcast, “The Bid”, Blackrock CEO, Larry Fink, reflects on his recent annual letter to CEOs. The letter focuses on the importance of stakeholder capitalism, and that to sustain long-term profit, business leaders need to value all those with a stake in their companies – not just the needs of shareholders’.
“The amount of money that is moved into more sustainable strategy is just the beginning,” he states, “If you are a company that is not winning those flows because you are not moving fast enough, you are going to be seeing money outflows in your shares, and money flows into your competitor or another industry.”
And Fink’s not alone in this thinking. A UK CEO report by KPMG at the end of 2021 highlighted that 65% of CEOs have faced increased demands from stakeholders for greater ESG transparency and reporting, whilst 78% aim to lock in sustainability gains made in the pandemic.
On the other side however, some leaders still do not see the benefits – just 37% feel ESG will improve financial results, with 30% feeling it may impair them. The debate continues.
Between regulation, thought leadership, the macro-environmental factors and industry leadership, a wave of change is sweeping across the business world. The question is, can your business ride the wave, or will you be swept away?
The commercial benefits of ESG
So how do you ride the wave? One way is to build your ESG commitments.
There are innumerable benefits to ESG beyond legislative compliance.
ESG can contribute to the retention of staff, attracting new talent, ease of access to new international markets that have higher barriers to entry and cost reductions in the years to come to name a few.
At different touchpoints in your operations, ESG can be the solution to solve problems that arise. Consider the following business challenges.
Procurement and winning business
During the procurement process, sustainability and ESG are now essential differentiators.
When bidding for PQQs or tenders, sustainability requirements can account for up to 20% of the weighting in submissions. To increase your competitive edge, having to hand essential data to back up your social and environmental commitments is essential.
With companies such as Heron Bros exploiting ESG data to win new business, and Gilbert-Ash utilising environmental data to prove green credentials, the construction sector is starting to position ESG commitments competitively to win business.
Having ESG data to compete in tenders, therefore, could make the difference between winning or losing a commercial opportunity. Looking beyond the cost of acquiring data to see the financial return that it could provide, will set firms apart in years to come.
Net-Zero and sustainability commitments
2021 was the year of Net-Zero, with 136 countries committing to Net-Zero initiatives at COP-26, and organisations globally outlining their own carbon reduction plans, with ambitious 2030 and 2050 goals.
Commitment is one thing, however, and results quite another. The Green Claims Code introduced in 2021 aims to tackle firms who use “green marketing” while failing to support their claims with robust data.
It’s not a matter of “if” you get called out, it’s “when”. Governments globally are cracking down and collaboration between operational teams working to reduce emissions and communication teams effectively relaying those efforts to the external market, is key to stay on the right path.
Moreover, having a carbon reduction plan in line with PPN 06/21 is not enough – how do you track progress toward that goal? How can you determine if you’ll reach it or not? Without active recording and measurement, working towards any KPI is impossible.
All that and we’ve not even mentioned Streamlined Energy Carbon Reporting (SECR) and the Task Force on Climate-Related Financial Disclosures (TCFD). Net-Zero expectations are tightening year-on-year, and momentum is not slowing down – it’s time to get on board.
Building responsible (and commercial) supply chains
Global supply chains have been crippled in the wake of COVID-19, and businesses globally are suffering. The cost of building materials in the UK has reached a 40 year high, and supply chain risks built up across decades have led to world shortages of tier 1 and tier 2 essential goods worldwide.
The question post-pandemic is, could these risks have been avoided? For decades, businesses’ offshored operations seeking to cut costs and maximise profits, but what we see now is a trend toward supporting local markets, and consumers favouring businesses that buy local.
Why is that? COVID-19 is the latest Black Swan Event, changing our world forever, and so as consumers are faced with uncertainty, economic risk and change, they find comfort in retaining value within the local economy.
Moving forward, therefore, building supply chains on a more local level can reduce risk, boost the local economy, and drives social responsible supply chains, all of which falls under your ESG commitments.
Measuring, monitoring, and reporting on those commitments can be a powerful business proposition. Increase your positive impact while reducing risk, lowering operational costs, and minimising long-haul scope 3 emissions.
Embracing diversity and finding tomorrow’s leadership
Amidst all the turmoil of the last two years, a generational shift has occurred in the workplace.
Generation Z have entered the professional scene, and as employees, they desire values-driven leadership, diversity in the workplace and transparent, flat-level communication. Technology-savvy and entrepreneurial, 55% of Gen-Z employees feel they’ll be a part of a business that changes the world, and they’re here to shake up the workplace.
As an employer composed of mainly Generation X and Millennial ideals, how do you attract emerging talent from this new cohort? How can you protect your businesses’ longevity and ensure you leave a legacy that can compete, led by the best of tomorrow’s leadership?
By embracing wellbeing initiatives, pioneering diversity in your workforce, and standing as an exemplar of ethical business, you will pique the attention of prospective Gen-Z employees that can cultivate the culture you need to compete in tomorrow’s business world.
Having ESG data to support your pitch will help you stand out in today’s highly competitive employment market.
Commerciality is more than profit
What’s important to grasp here is that real commerciality is more than your net profit margin at the bottom of your accounts.
Commercial thinking and success are driven by your approach to people, planet and profit – all three and not just the latter. This has been the case for some time, and the direction of travel won’t change any time soon.
If you want to keep your shareholders happy, keep all your stakeholders happy, and success will follow.
Learn to ride the wave. Don’t be swept away by the tide.
Related blogs
What’s important to grasp here is that real commerciality is more than your net profit margin at the bottom of your accounts.
Commercial thinking and success are driven by your approach to people, planet and profit – all three and not just the latter. This has been the case for some time, and the direction of travel won’t change any time soon.
If you want to keep your shareholders happy, keep all your stakeholders happy, and success will follow.
Learn to ride the wave. Don’t be swept away by the tide.