HOW ESG HELPS SMES SHOW INVESTORS & CUSTOMERS SOLID BUSINESS MANAGEMENT
According to PwC, 83% of investors believe higher ESG (environmental, social and governance) management will improve returns and/or reduce risk. Getting your ESG proposition right links to higher value creation. Here’s why it’s key for showing investors and customers that you have solid and socially responsible business management in place.
WHY ESG IS IMPORTANT
1. To Show You are a Long-term Safe Haven for Investors
Investors naturally choose businesses assessed to be more sustainable and less likely to suffer operational or reputational concerns, or fall foul of regulation.
Responsible investment is an approach to investment that acknowledges the relevance of environmental, social and governance (ESG) factors alongside traditional financial metrics. It is based on the belief that addressing ESG issues will protect value and enhance portfolio returns, especially over the longer term. ESG-oriented investing has experienced exponential growth. Mckinsey states that Global sustainable investment now exceeds $30 trillion—up 68 percent since 2014 and tenfold since 2004.
According to PwC, 88% of investors believe there is added value in responsible investment, and 97% believe that RI will increase in importance over the next two years.
2. To Show that You are a Sustainable, Trustworthy Choice for Customers
Customers choose brands just like they do people,
based on trust and how well they enjoy their company.
The 2019 Natural Marketing Institute report shows that 58% of US consumers polled considered a company’s impact on the environment in considering where to purchase goods and services, and are more likely to purchase from companies that practice sustainable habits. Brands with a high sense of purpose have experienced a brand valuation increase of 175% over the past 12 years compared to an average of 86%, as per Kantar Consulting's Purpose 2020 report.
HOW ESG SUPPORTS STRONG BUSINESS MANAGEMENT IN SMES
1. Increased Top-Line Growth
Companies that recognize the importance of adapting to changing socio-economic and environmental conditions are better able to identify strategic opportunities and meet competitive challenges. At THG Advisory, we help clients prepare for success in any potential future, whether it’s prepping for growth to scale, change management, supporting culture and communications structures, or accessing new opportunity through process or optimization.
2. Financial Strength
Good ESG practices reduce bottom line as well as environmental costs e.g. lower consumption of energy, water, and other resources such as packaging, while also reducing emissions, waste, and pollution. Improved operational efficiencies also contribute to overall profitability and the ability to offer optimised pricing.
3. Optimised Regulatory and Legal Controls
With solid regulatory governance in place, the risk is reduced for fines, penalties, and intervention enforcement, at the same time as opening up opportunity for subsidies and grants. ESG also covers social issues such as a company's labor practices, talent management, product safety and data security. All of these contribute to building trust and credibility for both investors and customers.
4. Enhanced Employee Performance and Customer Service
Companies with strong ESG attract and retain top talent. Millennials care deeply about the values of the companies they work for, and environmental and social responsibility are very important to them. When brand and employee values are aligned, a common purpose drives loyalty and productivity. Making sure that workplace policies with regard to compensation, development, health, and safety of employees are in place is also key to retaining talent.
5. Access to Better Resources
ESG encourages cooperation and collaboration, with stronger community and government relations, which in turn increases access to assets and broader markets. Industry and consumer collaboration also helps to address obstacles or weaknesses that lie within market practices, structures, and regulation.
With access to fewer resources, SMEs have a much better chance of survival, growth, and scalability if their ESG structures are strong, and values and operational procedures are well documented and communicated from the onset.
Now is the time to implement more sustainable practices, develop governance that makes sense, and focus on solid business management, attracting both investors and customers.
In a recent KPMG survey shoes, 37% of business leaders state that one of the biggest barriers to addressing ESG issues is limited company knowledge and expertise. Whether your focus is on discovering efficiencies, optimising your business operations, or increasing collaboration, THG Advisory partners with your organization to implement effective ESG and deliver results.