Taking a strategic approach to ESG can help you gain a competitive advantage.
An Environmental, Social, and Governance (ESG) strategy is a cornerstone to accelerating impact and financial growth goals. A forward-looking ESG strategy deepens customer relationships and loyalty, improves the ability to attract and retain talent, reduces regulatory risk, increases the ability to attract capital, and results in increased resilience, driven by a more nuanced understanding of stakeholder expectations.
Critical is connecting the dots between sustainability risks and opportunities, investor demands, government regulations, finance, and business operations to think holistically about integrating ESG into every company function.
When developing an ESG strategy that will deliver meaningful impact, now and for the long-term, it is critical to align and integrate the strategy with your organization’s larger strategic goals and objectives. Also critical is considering ESG from the following strategic perspectives: risk management, competitive advantage, compliance and regulation, and stakeholder perspective.
Risk management
The demand for corporate accountability, transparency, and sustainability has never been greater. Stakeholders want to know how organizations are affecting the environment, how treat and interact with their employees, clients and communities, and if they conduct their business ethically.
These environmental, socioeconomic and governance variables, collectively referred to as ESG risks, are likely to affect the financial situation or operating performance of a company. While ESG risks are diverse, they are real, and they can have a significant impact on an organization’s reputation, performance, and profitability.
By considering these risks when developing a strategy, organizations can identify, manage, and leverage these risks.
Stakeholder expectations
Stakeholders don’t want organization’s to “check the box,” when it comes to ESG, they want organizations to take real action and to engage authentically.
As the Arthur W. Page Society stated in its July 2022 report on Stakeholder Capitalism and ESG Guide for Communications Leaders: “Success requires going beyond purpose statements, ESG declarations and policy pronouncements to actually create authentic results that benefit both social goals and enterprise success. … Set a clear purpose that is focused on long-term, societal value. Be clear about specific goals. … Establish systems and processes designed to achieve those goals. Set incentives based on success in achieving those goals.”
Regulation and Compliance
The number of ESG-related regulations that organizations must understand, navigate, and comply with are increasing on a seemingly daily basis. As these regulations come into effect, organizations are facing higher levels of regulatory scrutiny and enforcement action.
Reactive and fragmented compliance efforts will prove detrimental – and be frustrating. Being proactive when it comes to regulations and compliance is paramount.
Competitive advantage
Incorporating ESG factors into strategy can give your organization a competitive advantage by enhancing your reputation, attracting employees, investors, and customers who prioritize sustainability and social responsibility, and improving operational efficiency and innovation.
Again, this requires a shift in mindset from “checking boxes,” or seeing ESG as a burden, to approaching ESG as an opportunity.
A forward-looking ESG strategy can help you deepen customer relationships and loyalty, improve the ability to attract and retain talent, reduce regulatory risk, increase the ability to attract capital, and increase resilience. The most successful ESG strategies are the ones that are aligned and integrated with the organization’s larger strategic goals and objectives.
