ESG where's the profit and what's the point?

Organisations are increasingly taking ESG (Environmental, Social, and Governance) criteria seriously in their decision-making and reporting processes. However, the level of commitment to ESG varies significantly among companies and industries, and there are plenty of accusations of cynicism and greenwashing that plague its reputation.

Like every evolution before it, ESG faces challenges in being universally accepted.  Why is that?

1.      Some companies may be exaggerating their ESG efforts to appear more sustainable or socially responsible than they actually are.

2.    There is a lack of standardisation.  Without universally accepted standards for measuring and reporting on ESG performance it will remain difficult to convince the sceptics.

3.    In the end profit will win most arguments, so some companies may prioritise short-term profits over long-term ESG goals.

4.    Companies may face trade-offs between different ESG objectives. For example, a company may have to choose between investing in renewable energy and creating jobs in a low-income community.

So, apart from obtaining some imaginary credit for being seen to do the ‘right thing’, why bother?  Thankfully, the positives significantly outweigh the negatives.

a)   Increasingly, investors are prioritising sustainable and socially responsible investing. As a result, companies that prioritise ESG criteria can attract capital from these investors.

b)   Adopting ESG practices can help companies create long-term value for their shareholders by improving their operational efficiency, reducing costs, and fostering innovation.

c)    Improved reputation and brand image. Demonstrating a commitment to ESG can enhance a company's reputation among customers, investors, and other stakeholders. This can lead to increased customer loyalty, brand trust, and sales.

d)   Addressing ESG issues can help companies identify and mitigate potential risks related to environmental, social, and governance factors. This can reduce the likelihood of financial losses, regulatory penalties, and reputational damage.

e)   ESG practices, such as reducing energy and water consumption, can lead to cost savings and improved operational efficiency. By adopting more sustainable practices, companies can also reduce their environmental footprint.

f)     Many employees, especially younger ones, prefer to work for companies that prioritise ESG principles. A strong commitment to ESG can help companies attract and retain top talent, which can lead to higher productivity and innovation.

g)   Companies that prioritise ESG are often better positioned for long-term success. By focusing on sustainability and social responsibility, companies can create long-term value for their shareholders, communities, and other stakeholders.

h)   Embracing ESG can drive innovation and open up new business opportunities. For example, companies that invest in renewable energy and sustainable technologies may be better positioned to capitalise on the growing demand for clean energy and other sustainable products and services.

i)      Adopting ESG practices can help companies comply with existing and emerging regulations related to environmental and social issues. Compliance with these regulations can help companies avoid fines, legal action, and other penalties.

j)      Companies that prioritise ESG often have better relationships with their customers, employees, investors, and regulators. This can lead to increased trust, collaboration, and support from these stakeholders.

Embracing ESG can provide organisations with a wide range of benefits, from improved financial performance and risk management to enhanced reputation and stakeholder relationships.

So, what’s the point?  As you can see, there are numerous reasons to adopt an ESG focus.  To the question, ‘where’s the profit’, that may well be what companies who choose not to board the ESG train end up asking themselves.