Why Is ESG Important?
Companies don't have to choose between profit and ESG
Business training back in the 90s looks much different than it does today. Back then, approaches to business were very one-sided: There was a “Wall Street” approach to profit, and when you mentioned “green,” that only referred to money.
I wasn’t raised that way, and I knew I wanted to treat businesses holistically to encompass humanity, community, and the physical environment. I strongly believe that for organizations to be successful they must be creative in solving larger world problems, ensuring social responsibility, and actively working to ensure their sanction by humanity.
Today, businesses can’t hide as easily from their responsibilities. More importantly, many businesses want to be doing the right thing. There are bigger success factors than profit now, with one of those key factors being addressing environmental, social, and governance—or ESG—issues.
ESG speaks to a company’s commitment to go beyond making a profit, and this attention to impact investing goes hand-in-hand with high-profit performing and improved returns. A business focusing on ESG strategy is actively striving to contribute positively to the environment and social advancement and conduct themselves responsibly. In the past, companies felt pressure to choose between profit and ESG, but that’s no longer the case as ESG leads to improved financial performance.
As standards are rising for more responsible investments, a strong proposition addressing ESG challenges creates value and satisfies those expectations from investors, consumers, and stakeholders. ESG relies on the development and implementation of an appropriate strategy to provide downside protection, improve risk management, and drive innovation since performance considers how businesses conduct their operations, in addition to how much money they make.
When it comes to the ESG criteria:
Environmental criteria speaks to the energy that companies take in and the waste discharged, the resources needed, and the consequences for living beings.
Social criteria addresses how companies operate within the broad and diverse society, as well as considers business relationships and reputation.
Governance covers internal practices, controls, and procedures companies adopt to govern themselves, comply with the law, and meet the needs of stakeholders.
Companies that strategize, address these concerns, and “do the right thing” are more likely to do well in the future, seeing as ESG commitments today are linked with high-profit performing companies. Not only do these businesses meet the expectations of institutional shareholders and stakeholders, but a robust ESG strategy can open up access to large pools of capital, build a stronger corporate brand, and promote sustainable long-term growth that benefits companies and investors.
So, where do you even start with addressing these massive ESG concerns?
Begin with identifying one or a few focus areas that are important to your industry and stakeholders and get clear on how you can improve in those areas by establishing measurements and tracking your progress. Make this publicly known and share your story! Transparency in your organization’s ESG journey shows that you’re headed in the right direction and keeping up with consumer, employee, and investor demands.
For boards and management teams who need guidance to ensure their strategy is relevant and fits with their business purpose, we can help. The ESG landscape is complex and dynamic, so with our experienced ESG strategists, we can recommend frameworks and approaches that best apply to your goals—no matter how big or small your company is.
Karri Howlett Consulting provides customized trusted advisory services to support your organization as you prepare aligned, powerful, and purposeful business plans. With over 20 years of experience working with and leading organizations creating new businesses or business expansions, or embarking on ownership transition, Karri Howlett, CFA, C.Dir. provides governance, strategy, and financial expertise to support and enhance your business.