Environmental, Social and Governance (ESG) is a hot-ticket item in the business world as more executives seek ways to adhere to rising ESG demands. To increase ESG funding amid inflation and market uncertainty, companies face stringent disclosure requirements to demonstrate their commitments.
The time for executives to prepare for ESG demand is now. Here’s everything corporate leaders must know to achieve this task effectively.
Stakeholders Hold Brands Accountable for ESG
According to a recent report by global accounting firm KPMG, 59% of companies plan to pause and rethink ESG as they navigate a looming recession. However, doing so could pose a grave financial mistake for those who’ve made headway in ESG profitability.
Pulling back on ESG efforts may lead to a fallout between corporations, customers, investors and the workforce. Likewise, straying off course may prove more challenging to catch up again afterward.
Executives recognize stakeholders are moving the dial toward increased sustainability and equity. Those who want to see companies improve corporate responsibility will ultimately walk away — meaning companies will miss out on potential funding, sales revenue and top talent.
Out of the three ESG categories, investors are most interested in environmentalism. Global sustainability investments rose 15% between 2018 and 2020, reaching $35.5 trillion. The United States and Europe accounted for 80% of those investments. What was once considered a niche investment market now holds the most weight in investment decisions.
Investors are the top players holding companies accountable for ESG participation. Many perceive ESG as an extension of brand authenticity and reputation that positively affects shareholder value.
The workforce has also given importance to corporate ESG. More job seekers are interested in working for companies committed to today’s sustainability and social issues.
Approximately 70% of job seekers factor in a company’s sustainability when accepting a job offer — about 24% call it a significant part of their consideration. They also look for diversity and inclusion. If executives want to hire and retain a robust and well-skilled workforce, they’ll need to continue yielding to worker ESG ultimatums.
Consumers are critical stakeholders dictating a corporation’s profitability. After all, they’re the ones buying products and services.
Surveys have indicated 85% of consumers have gravitated toward sustainable purchases over the last five years — 32% of which classify as millennials. As climate change awareness and environmental concerns rise, their calls for corporate responsibility become unavoidable.
3 Ways Executives Can Prepare for ESG Demand
Executives have their work cut out to prepare for rising ESG demand. What’s clear is profitability and continued operations linger on corporate efforts to improve sustainability, equitability and leadership. Here are three ways executives can meet ESG expectations.
- Create an ESG Working Group
Transparency is essential as the demand for ESG disclosure trends upward. Companies that openly share their efforts and hold themselves liable become increasingly valuable to shareholders.
So far, 60 companies have agreed to adopt ESG reporting measures, including SalesForce, Unilever and Sony. The criteria set a benchmark for emissions, employee volunteerism and workplace diversity, among other metrics, with a comprehensive framework similar to financial reporting.
Executives should deploy ESG working groups or task forces to direct their ESG strategies. Of course, their focus should remain on stakeholder engagement, tackling critical areas for ESG investment purposes and reporting on issues that financiers most want to see.
ESG working groups can help their firms identify emissions sources and connect with supply chain vendors with similar sustainability goals. After weighing the risks, costs and benefits of achieving net zero, the ESG task force can develop the necessary disclosure standards and procedures.
- Improve Data Management
Executives can only report on their ESG efforts if they maintain effective data management. As it stands, many companies need to disclose their findings accurately.
It’s wise for executives to invest in innovative technologies that improve data management — the latest software can make storing information and identifying solutions easier for enhanced sustainability and energy efficiency. Utilizing different programs to collect and analyze company data ensures greater precision for ESG disclosures.
Per recent proposals from the Securities and Exchange Commission (SEC), nearly all companies find reporting emissions for end-of-life consumer products challenging. For one thing, it’s hard to know what consumers do with the products they purchase. Enhanced data management systems can help companies estimate their progress and predict future performance for each of the SEC’s scopes for ESG emissions reporting.
- Develop an Integrative Approach to ESG
As stakeholder demand for ESG increases, companies will need to develop an integrative approach to policymaking, protocols and commands. Essentially, ESG must merge with the inner workings of business operations.
When done correctly, ESG efforts become part of everyday operations, ensuring long-term adherence, reliability and enhanced transparency. ESG companies also set the bar higher for others to comply with today’s corporate responsibilities, producing more streamlined industry-wide regulations and processes.
ESG Demands Will Continue to Rise
Executives hoping that rising ESG demand will subside are in for a surprise. As long as climate change awareness and social issues grow more prevalent, the demand for corporate responsibility will remain. It’s best if companies begin their transition toward sustainability and improve their ESG.
Written by Jane Marsh.
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