How ESG Can Help You and Your Business
Every organization in our industry and related industries is becoming more connected with environmental, social, and governance concerns. We can refer to these as the three dimensions or components of ESG.
However, before we explain the value of a strong ESG strategy and how it benefits your company, let’s take a closer look at these three individual components.
E: The environmental dimension of ESG refers to how businesses safeguard the environment, use natural resources more efficiently, and reduce their environmental footprint. This includes managing waste, emissions, and climate change issues.
Why is this important? Businesses that adopt good environmental practices can reduce costs, improve their reputations, and mitigate risks.
S: This refers to social responsibility and how a company interacts with its stakeholders, such as employees, customers, suppliers, vendors, and communities. This dimension involves respecting human rights, labor standards, diversity and inclusion, health and safety, and customer satisfaction.
Why is this important? Businesses that respect social values can enhance brand loyalty, attract and retain talent, and foster innovation.
G: This is the governance dimension of ESG and often the least understood. It covers how businesses are operated and controlled and includes executive compensation, shareholder rights, ethics transparency, and following the letter of the law. It also includes how companies ensure their regulatory compliance.
Why is this important? Businesses that follow sound governance principles can increase their trustworthiness, accountability, and performance.
With these three components better understood, the next thing to know is that ESG results in better business performance. This is the conclusion of a comprehensive 2019 McKinsey report.
McKinsey reviewed more than 2,000 previously conducted studies on the impact ESG has on a company’s equity returns. Equity returns are considered one measure of a company’s financial performance.
They found that 63 percent of those 2,000 organizations said ESG has had a beneficial impact on financial performance; only 8 percent reported it had a negative impact.
With this in mind, here are three ways ESG can create value for jan/san organizations:
1. Business Growth. According to the McKinsey report, a strong ESG strategy can help businesses expand their markets and attract new customers. Many organizations that value ESG prefer to partner with other companies that share their same vision and commitment. Moreover, ESG can influence consumer choice and loyalty. Although some consumers are unwilling to pay extra for products from ESG-oriented manufacturers, about 70 percent said they would pay more if the product met their performance expectations.
2. Cost reductions. ESG practices can lower expenses significantly. ESG manufacturers use resources more efficiently, reducing the costs of these resources. A case in point is 3M. The company claims it has saved approximately three billion dollars since it launched its 3Ps (Pollution Prevention Pays) program in 1975.
3. Boost in Employee Productivity. Based on several different reports and discussed in a 2022 article in the Harvard Business Review, ESG-focused companies are viewed as “better places to work.” This often translates into employees working more efficiently and feeling a closer connection to their employers. However, it did qualify that this enhanced productivity is usually found in medium to large organizations, not necessarily smaller ones.
The McKinsey study pointed out two more significant benefits of ESG. I pulled these three because they would most benefit organizations in our industry. The takeaway is that ESG does pay off and will pay off even more for our industry in years to come.
Learn more by clicking on My Articles Published in LinkedIn.
As always, we encourage your thoughts on this topic. Please feel free to contact us here.
The mission of The Ashkin Group is to transform industries with responsible, sustainable, business practices.
