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"ESG - Risk or Opportunity?" - the a-b-c of ESG series
"ESG - Risk or Opportunity?" - the a-b-c of ESG series

August 22, 2022

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Hope you enjoyed my earlier blogs/articles on "What is ESG?" and "Why ESG?" in the a-b-c of ESG series. Often, organizations start their ESG Journey based on a plethora of reasons (see Why ESG?) that, more importantly, propels them towards action. These reasons primarily emanate from one of the following two outlooks (1) the potential gain from a perceived opportunity  (2) the potential concern from, or the risk of, the occurrence of a future (unpleasant) scenario

Here's a representation of the key concerns & opportunities of a company starting its ESG Journey.

ESG Concerns and Opportunities

 

 

 

Let's deep dive into the main ones here.

Concerns with ESG:

1/ I need to do ESG reporting because my investors/ stakeholders are asking for it! 

Often this is a key trigger for a company disclosing their ESG activities in a more structured manner. In some countries there are statutory requirements for these disclosures (e.g. BRSR disclosures for top 1000 listed companies in India). This "need" propels companies to a path of ESG activities, and related disclosures, which is actually beneficial because often they are engaged in meaningful ESG activities but are not measuring or disclosing them in a structured manner.

 

2/ Weaving ESG in my products and services will make them expensive!

ESG is perceived to be expensive. Yes, to switch from a status quo to a more environment-friendly process or product will come with some upfront costs. But by 1) being more experimental and creative 2) optimising the process including being mindful of waste generated in the entire supply chain - sourcing, manufacturing, packaging, distributing, etc., the final product ends up being marginally costlier or even competitively priced. Environment-friendly legislature has been gaining steam and will keep getting tighter. Customers, especially the Millennials and Gen Z, are embracing sustainability. Eco-friendly products create brand loyalty and customer stickiness. In fact, most customers don't mind paying the premium for an eco-friendly product. So there can be a higher margin for a sustainably produced product.

 

3/ What if my ESG initiatives don't create impact?

Companies should not just dabble with ESG - it's not a bolt-on that should be done in isolation. Organizations need to do an impact analysis (called materiality analysis/ assessment) on what are the material ESG topics for them and for their industry, talk to a wider set of stakeholders (customers, employees, local communities, investors, etc.) and then pick up those material ESG topics which are critical for business impact and on which they need to make progress or continue to lead. Recipe for success - Pick up a only a few such initiatives deemed to be key (material) to the company by its stakeholders, keep measuring progress and disclose, both internally and externally, progress over time to ensure momentum.

 

Opportunities with ESG:

4/ ESG helps me engage better with my stakeholders!

This is the biggest strength of ESG. Companies are pivoting towards a more proactive, inclusive, and consistent approach in engaging with their stakeholders. And this is a game-changer. Companies realise that being better, and more frequently, connected with various stakeholders (customers, employees, local communities, regulators, investors, trade associations, etc.), on key ESG topics helps them understand and navigate business externalities better. Companies are better informed which reflects in their decision-making. Additionally, effective stakeholder engagement builds, and enhances, corporate trust and reputation

5/ Embracing ESG holistically drives sustainable, long-term, corporate actions and outcomes!

While materiality is always the best guide in tackling which specific ESG topics/themes are relevant and critical for an company, it is essential that ESG gets embedded in the corporate DNA in a more holistic manner. Having an ESG lens in your overall decision-making at all levels of the company - at an individual/ employee level, at a team/ function level and at an aggregated corporation level - leads to innovative ideas, alignment towards stretch targets, and motivated employees creating innovative, sustainable products or delivering services in a sustainable manner - often to new sets of customers. ESG is rightfully a great value creator especially in the medium and long-term.

6/ ESG can be a big differentiator for my company!

A truly diverse and inclusive company culture cultivates greater innovation and creativity. An organization with a clear purpose of balancing the triple bottom line of profits-people-planet will attract loyal employees, especially amongst Millennials and Gen Z, thus creating a virtual cycle of improving employee engagement, retaining the right talent and enhancing the corporate brand. Additionally, the ESG lens, improves market adaptability and corporate resilience, which are critical for thriving in our ever-increasing VUCA (volatile, uncertain, complex, ambiguous) world.

 

A mantra I love, that sums it up - "Ink the Opportunities, Pencil the Concerns!"

 


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Anuj D
Head - Sustainability & ESG

I'm passionate about dovetailing business strategy with agile execution to drive impactful strategic initiatives at progressive organizations which focus on sustainable business outcomes. Current focus is driving ESG (focus Sustainability) awareness and best practices at scales across organizations.

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