Why Company Value Must Be a Key Component to Developing the Right ESG Strategy
Updated: Sep 21, 2020
ESG (environmental, social and governance management) as a phenomenon is sometimes considered CSR 2.0. It offers businesses an opportunity to reset the discussion on social responsibility and find a business case to support making sustainable investments and structural adjustments ‘stickier’, by quantifying social importance for businesses through demonstrating the creation of long-term value. How is your organization’s perception of its ESG strategy shaping your company’s internal and external reputation?
Much has been said and written about the importance of companies identifying and realizing their purpose. With a clear ESG framework in place, it is easier for companies to rationalise and communicate 'how' they want ESG to guide the "good corporate citizen" while driving real value across the organization. With this underlying structure in place, organizations create a stable pathway for future long-term growth and strategic planning.
What is the Difference Between ESG and CSR?
Both are long term strategies. Both aim to create a positive company footprint. The key difference is metrics, with ESG being used as a key assessment marker for investors.
CSR – a form of self-regulation
CSR (corporate social responsibility) represents a company’s efforts to have a positive impact on its employees, consumers, the environment, and wider community. It is a form of self-regulation that most companies report on annually, and/or make a statement about on their website.
ESG – linked to economic value
ESG (environmental, social and governance management) are a set of standards/criteria for investors and other stakeholders to evaluate a company’s environmental, social and governance performance. Because it is linked to economic value, ESG requires metrics, representing important measures for company valuation, risk management and even regulatory compliance.
What ESG Metrics Do Shareholders and Investors Look At?
ESG is used as a key assessment marker for investors, and ESG data is often used to identify superior risk-adjusted returns versus a business poorly prepared for the future.
Even large banks such as Barclays cite “Clear and credible ESG information is critically important to enable effective investment decision-making, support company and investor engagement and underpin the growing range of products based on ESG factors.” Having such clear importance on traceable and communicable ESG targets, also drives the need to suppliers and customers to also commit to the same.
In particular, ESG looks at the following areas (but is not limited in scope) of how businesses:
· Respond to climate change; how you affect the community you serve and conduct business in.
· Treat their workers; train their managers and enforce company culture
· Build trust and foster innovation across the value chain
· Manage their supply chains, communicate with customers and
How Authentic Company Values Drive ESG
The Journal of Consumer Psychology defines brand authenticity as ‘the extent to which consumers perceive a brand to be faithful toward itself, true to its consumers, motivated by caring and responsibility, and able to support consumers in being true to themselves.
Implementing clear, transparent frameworks, and analytics, supported by robust governance and operations structures, is paramount for keeping your company true to its values, and must be at the heart of your ESG strategy.
How to Ensure Your Business has Core Values that Will Stick
Identify values that relate to the mission statement of your company, and that differentiates your business.
Keep the list short and actionable.
Communicate and support the values you set across the organization, through all levels and departments.
Encourage collective ownership, implementation, and enforcement of the core values. This can be done through governance, trainings, SOPs, other official and informal structures.
Hire, promote and dismiss people based on your core values.
Getting your ESG proposition right links to higher value creation. However, companies who fail to nail the primary company value will miss the mark on their ESG strategy. Oftentimes the translation of the purpose into clear ESG -led focuses that prove economic viability can be hard to achieve in isolation, and partnering with the right, to ask the right questions, involve the right stakeholders and frame the correct issues, yields incredible insights.