The transition to net zero, sustainable and ESG (environmental, social and governance) focused practices is one of the greatest, most pressing challenges faced by businesses today.
Now more than ever, companies are feeling the pressure from investors, shareholders, consumers and climate activists to become more transparent about their ESG activity and performance.
New analysis has revealed surprising transparency gaps between what leading businesses say and do regards to their ESG performance.
Management Today have recently published a report revealing the FTSE 100 businesses ranked throughout five tiers from most to least transparent on ESG.
For many businesses, moving towards a strategic focus on ESG can result in a drastic change to their business operations.
With this in mind, for those businesses still sceptical about the positive impact that prioritising ESG can have, what are the key benefits of increasing the transparency of ESG practices?
Enhanced reputation and strong customer loyalty
By increasing the transparency in ESG reporting and accountability, businesses can demonstrate a real commitment to responsibility and sustainability.
Consumers are increasingly aligning their buying habit with their values, with a large majority only interesting in purchasing goods or services from businesses that have an ethical, eco-friendly purpose.
Recent research suggests that millennials as a key consumer group are likely to use the internet to find out more about a business’s ESG performance and activity before purchasing a product or service. Because of this, it’s important that businesses continue to adapt to match their customer’s values.
Manage risks and measure effectiveness
No matter the industry or size of a business, incorporating ESG factors into corporate, high-level decision-making is good practice for risk management.
Accountability and transparency can help businesses to identify, assess, and manage their ESG risks effectively. Investing in ESG capabilities can support collecting and reporting data which can help to prevent potential financial, operational, legal or reputational risks associated with ESG activity.
By utilising ESG reporting tools, businesses will be able to manage the effectiveness of their practices, identify areas of improvements, which in turn will support businesses to achieve their overarching objectives.
Boost access to capital
As investors become more interested in opportunities that will have a long-term positive impact, companies that prioritise their ESG and sustainability standards are becoming increasingly attractive to potential shareholders who are looking to put their money into ethical, socially responsible businesses.
ESG can also prevent businesses from becoming involved in stranded investments that could be affected by environmental problems in the long-term and changing regulation and risk averse providers of capital.
Re-design your business model for long-term financial viability
Investing in ESG and sustainability to re-design business models and transition towards a net-zero economy and being stakeholder value-driven can help to improve financial performance in the longer term.
Changing regulation on carbon emissions, customer buying preferences for green products will have significant cost implications for businesses.
A proactive, wholistic, and strategic re-fresh of your business model is likely to more advantageous for your organisation, rather than adopting reactive strategies.
Retain the most sought-after talent
Attracting and retaining the top talent is a huge advantage and can help businesses maintain their competitive edge.
Recent studies have shown that businesses who have prioritised their ESG performance have also seen rises in employee engagement, job satisfaction, and motivation.
By giving employees a real sense of purpose when performing their day-to-day roles, this can decrease recruitment costs as well as improving overall business productivity.
Improving ESG performance and transparency by creating a resilient strategy that ensures future success can offer many benefits from improving long-term financial performance, to increasing access to lower cost capital and wider investor base.
However, embarking on a journey towards improved sustainability does not come without its challenges.
If you’re looking to discover expert insights, practices, and techniques to implement within your business to help increase your focus on ESG and sustainability, discover our new four-day short business course, Leading ESG and Sustainability.