Lis Anderson is founder and director at PR consultancy AMBITIOUS and an agency MD with over 20 years in the communications industry.
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Values are changing. Businesses need to live and breathe their principles and show their employees and investors what matters most to them. This can be done through an ESG strategy, which puts environmental, social and governance issues at the heart of their business agenda. My agency’s work is increasingly around helping organizations navigate their way through and communicate complex ESG messages to their audiences.
In this article, I’d like to stress the importance of having an ESG communications strategy.
ESG Vs. CSR
Corporate social responsibility (CSR) has been a mainstay of business strategy for years. So where does the ESG model fit into this?
ESG is a growing movement that puts stakeholders at the heart of business operations. Put simply, whereas CSR embraces the notion of doing good for society, ESG embeds it more deeply within an organization. It recognizes that companies must demonstrate their contributions to ecological preservation and social well-being. And it’s accountable. That means that companies must report back on their commitments and targets.
The Emergence Of ESG
A recent report from Vuelio found that there’s a growing emphasis on ESG among leaders, managers and communicators. Nearly a third (31%) of organizations said they have a policy in place to manage ESG, and 41% said that it was a work in progress. The report also found that 63% of PRs can confidently define ESG and the impact it has on their clients or company. According to Vuelio, “ESG is one of the most radical developments in business within the last 50 years. It’s likely to shape the way both organisations and the communications sector evolve and operate for years to come.”
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More corporate businesses are recruiting sustainability specialists to help define their ESG agenda. This involves establishing KPIs and sustainability performance targets to drive change and provide evidence that the business is acting on its values.
The ESG Business Case
But what is the impact of ESG activity on the bottom line, and can it really improve business performance?
Research shows that businesses that invest in ESG outperform others. The University of Oxford and Arabesque Partners conducted a meta-study of over 200 sources, including academic studies, industry reports and media articles. Nearly nine out of 10 (88%) of the sources it reviewed found that companies with strong sustainability practices demonstrated better operational performance. And this ultimately translated into improved cash flows.
The Benefits Of Embracing ESG
Let’s look more closely at some of the fundamental benefits of investing in an ESG strategy:
Mitigating Risk
Risk reduction is a major outcome of embedding ESG into your company culture. Neglecting ESG issues can have a negative impact on your finances and reputation. In worst-case scenarios, it can lead to costly legal settlements and even result in illness and fatalities. Just look at BP’s Deepwater Horizon oil spill in the Gulf of Mexico in 2010. The clean-up costs alone could have amounted to $90 billion, according to The Financial Times, and BP’s share price lost 50% as the disaster worsened between April to June 2010. But it wasn’t only the company’s finances that took a beating—BP emerged from the disaster with its reputation in tatters, too.
This segues neatly into the PR’s role of issues management. A skilled communications professional will develop a thorough issues management program. This can be embedded into your ESG strategy and mitigate these kinds of risks.
Increasing Investors’ Interest
According to HSBC’s 2021 corporate risk management survey, investors are increasingly considering ESG criteria in their decision-making frameworks. Some estimates put that at $35 trillion to $40 trillion—or nearly half of all the assets under management globally. And an average of 80% of CFOs across global regions believe ESG criteria are important across both financial investments and supply chains.
Why all the interest? Because companies with high ESG scores tend to have higher market value. Probability & Partners in Europe found that “for every one extra point in ESG score cumulative excess return of the stock goes up by 8%.”
The changing tide toward sustainable investment may seem beyond the remit of the wider SME business community. But it indicates a shift in business culture and attitude that is likely to have far-reaching effects in the very near future.
This is echoed in Deloitte’s 2021 Global Millennial and Gen Z Survey, which asked people about their attitude to the values of their business partners. A third of respondents said they had “lessened business relationships” when they thought companies were doing harm to the environment.
Retaining Talent
HR is in a different place from where it was a few years ago. The pandemic has highlighted the importance of employee well-being, and COP26 means that climate issues are higher up on people’s agenda. Young people want to work for companies whose values resonate with their own.
In Deloitte’s report, millennials and Gen Zers rated the issue of climate change at the top of their list of concerns. There was some optimism in there too, though. Over 60% of this age group believed their employers were “doing well” in reducing their impact on the environment.
But ESG isn’t only about proving your commitment to the planet. This is where the social aspect also plays a key role. How do you treat employees, and what’s your attitude toward mental health, diversity, inclusion and human rights? The best business leaders take a collaborative and agile approach to what their employees expect.
Buy In Or Lose Out
While ESG is firmly on the agenda for larger corporates, many SMEs are still at the beginning of developing their strategies. And even in bigger businesses, the way that ESG is being embedded is constantly evolving and adapting.
For companies still at the consideration stage, the business case proves that now is the right time to buy in. If you don’t, you risk sending investors, employees and customers to a business that already has.
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Author: Lis Anderson, Forbes Councils Member
