Investing in sustainable practices are at the forefront of topics around the meeting tables of businesses across the globe.  

The areas of environmental, social and governance (ESG) can be difficult to manage without a clearly defined strategy, to stay competitive and meet the demands of responsible performance within the community.   

Corporate responsibility hasn’t always been a popular consideration in businesses but with the advent of ethical investments, a greater focus on ESG values are being strategised and institutionalised.

ESG matters are intertwined with each other and sustainable practices.  Let’s have a look at the individual areas to clarify what they are all about.

Environmental

Environmental matters includes things like the carbon footprint, eg your carbon emissions, sustainable practices and effects on climate change.  The energy you use and the waste you generate, and how you dispose of it, are key areas here.

Social

Relationships with the public and your stakeholders can reflect on the image of your business.  The social criteria addresses your business culture, hiring (and firing) strategies, inclusion and diversity values.

Governance

Governance involves internal policies, practices and procedures which are required to assist in decision-making, complying with regulations and meeting the needs of investors and stakeholders.  Strict governance enables easier enforcement of sustainable environmental and social practices to create real value.

According to over 2,000 studies on the impact of ESG propositions on equity returns, paying attention to the ESG matters in your business is strongly linked to higher returns(1).  How, do you ask?   

Research shows that ESG can link to cash flow in five important ways:

#1 Overall business growth by attracting more B2B and B2C opportunities through the offering of more sustainable products and achieving better access to resources through stronger community and government relations.

#2 Cost reductions through lower energy consumption, reduced water intake and less waste.

#3 Earn subsidies and government support – regulatory and legal bodies favour businesses which ‘do the right thing’.  Fines and penalties are incurred by wasteful or environment-damaging practices whereas grants and subsidies are being provided to assist and reward businesses in their quest for sustainability.

#4 Increased productivity by attracting better quality employees through a strong purpose of greater social credibility and through boosted employee morale and motivation.

#5 Enhanced investment return by the better allocation of capital for the long term, eg more sustainable plant and equipment and avoiding any investments that may not pay off due to longer-term environmental issues.

As you can see, there are many benefits that go beyond your performance in the market.  Closely interlinked with corporate image and brand reputation, demonstrated efforts to comply with ESG to produce healthier, cleaner products and services can create incredible value for your business.

A strong ESG framework is being witnessed to protect an organisation’s very existence as more clients, investors, regulators and other stakeholders reject firms that don’t ‘do the right thing’ in favour of those that are motivated to be more ethical and trustworthy.

Looking at your business’ environmental impact, social responsibilities and governance can be daunting. If your head is spinning when it comes to an ESG strategy, reach out to Murray and the team at eQA on 07 3715 6066 or murray@eqa.com.au.

(1) Gunnar Friede et al., “ESG and financial performance: Aggregated evidence from more than 2000 empirical studies,” Journal of Sustainable Finance & Investment, October 2015, Volume 5, Number 4, pp. 210–33; Deutsche Asset & Wealth Management Investment; McKinsey analysis