Organizations and leaders are under relentless pressure to deliver sustainability results and to comply with ESG reporting requirements. There is increasing pressure from stakeholders across a wide range of sustainability parameters, including investors, supply chain partners, regulators, consumers, communities, and employees. A transparent ESG metric is expected that reflects the impact of sustainability initiatives on the performance of a company.
Leaders face a wide range of challenges when responding effectively. Sustainability priorities must be set, short-term financial results must be balanced with sustainability goals, and multiple stakeholders, both internal and external, must be aligned. A sustainable vision must also be presented to the organization, a sustainable culture must be created to attract and retain talent, and, most importantly, sustainability must be integrated into the organization's mission.
An organization's value can be greatly impacted by ESG because it touches so many dimensions - both financially and beyond. Access to capital and its cost are determined by it, as well as valuation premiums. By improving brand equity, boosting customer retention, and attracting, retaining and engaging employees, it can be an effective tool to increase brand equity. As a result, reputational capital can be built across stakeholder groups.
As per leaders, when it comes down to it, ESG is all about risk. Risk underpins everything, whether it's climate change, diversity, equity, and inclusion (DEI), or good governance. A company that embraces ESG and has a robust plan to address it is, by definition, a better company. You would probably expect those companies with robust ESG plans to have lower long-term risk, be less likely to be sued for governance failures, and succeed in the long run if you were applying a risk rating to them.
Additionally, ESG is a people issue (and a risk issue), since it influences individuals' decisions to join and stay in organizations, as well as to go above and beyond in helping them succeed. Performance and growth are also affected by environmental, social, and governance approaches. People are ultimately responsible for adapting and becoming sustainable for organizations. A talent strategy and workforce program aligned with the organization's ESG priorities puts HR in a powerful position to advance and influence their organizations' ESG priorities.
Many leaders have instituted programs, processes, and metrics to increase diversity and representation in the workforce. Organizations are supporting electric vehicles in their transportation programs or reducing their carbon footprints through hybrid and virtual working as a way to support their environmental commitments. Several pension plans are incorporating ESG principles into their investment policies. In addition, some companies report annually on their ESG commitments and strategies. Environmental commitments, such as the disclosure of sustainable capital, are in themselves people-attraction mechanisms that create value for all stakeholders, including employees, shareholders, and community members.
According to some leaders, however, there is a risk associated with meeting ESG objectives. The problem is that it's a double-edged sword. By doing things in the name of ESG, you may expose your business and directors to liability. Because of this, approaching it deliberately is so crucial.