A business success not only depends on its innovative offerings but also on the way it operates, with regard to the environment, social and governance.
It is high time environmental, social and governance (ESG) issues should be a top concern of corporate management and boards. Interestingly, consumers are not driven towards companies that treat the environment, employees or the community in which they operate poorly.
ESG is the acronym for Environmental, Social and Governance (ESG). ESG is a reporting framework, and one of the critical, non-financial factors that are used for assessing the company’s performance. It is about how an organisation creates an impact on environmental factors such as carbon footprint, water usage, waste management, air pollution, among others, social factors like diversity, human rights, safety at workplace, and the corporate governing factors such as shareholders rights, anti-corruption, transparency, diversity of board members, audits, internal controls, and other corporate and political contributions.
Without just analysing the financial performance of a company, investors are more inclined towards ESG considerations. ESG is likely becoming the heart of mainstream investing as it addresses every aspect of a business – employee happiness, safety of work environment, safety of customer data, potential threats that an organisation may pose to natural bodies or climate changes.
Independent investors and financial institutions use the ESG scores as a proxy to determine the returns of the company and its risks. Higher ESG scores translate into better opportunities and healthy profits. ESG scores help enterprises create more sustainable solutions and attract greater talents.
The divisional head, Capital Markets at Nigerian Exchange Limited (NGX), Jude Chiemeka said, “Companies on the Exchange that demonstrate strong ESG compliance often gain access to more capital, attract a broader investor base, and can even raise capital from foreign markets.
“The NGX Premium Board features companies that adhere to international best practices on corporate governance and meet NGX’s highest standards of capitalisation and liquidity. Compliance is not only a matter of prestige but also an indicator of sustainable growth, making these companies more appealing to both international and domestic investors.”
Benefits Of ESG For Companies
Compliance: The ESG disclosure report provides transparency and visibility into an enterprise’s activity for its key stakeholders – consumers, investors, and NGOs. ESG becomes an important requirement if you want to maintain a social license and establish business ties and also explore investment opportunities in other countries. ESG strengthens business resilience.
Investment: The recent pandemic has shown businesses the value of sustainability. Investors in the new normal are looking for sustainable businesses that are mindful of the fair practices in their operations.
Competitive advantage: In this dynamic business landscape, it is a high priority to stand out in the crowd, not only in offering unique products/services but also in putting your employees’ and customers’ happiness at the top. A good ESG plan should include ways to improve the ethics and commitment to act in the best interests of your employees and customers. These days, consumers are satisfied and more likely to deal with companies that can offer them sustainable purchasing options and are more wary of the environmental impact, given the rising cost of fuel and the use of energy that is being spent across our lives.
Access to talent: The new-gen Z workforce is more conscious when it comes to labor conditions, ethical workplace, diversity and inclusion programmes, giving back to society, and other moral policies. ESG contributes to creating a great work culture to attract and retain top talent.
Cost reduction: ESG can contribute to cost savings considerably. Imagine the cost of procuring raw materials. Creating eco-friendly products, innovating with recycling options, redesigning equipment, introducing a fleet of electrical delivery trucks or vehicles to reduce fuel consumption and carbon emissions, offering flexible working hours to employees, working with suppliers to digitise the entire supply chain management process, and move to a cloud-based system to reduce the carbon footprint, using renewable energy sources, are some of the few cost-cutting ESG strategies for organisations.
In all, companies across the globe have started realising the importance of ESG.
