The recent COVID pandemic has taught us all that sustainability is not just limited to tackling the risk to the environment; rather, it is more about creating resilience in infrastructure. Your business, like every other business, is undoubtedly deeply intertwined with environmental, social, and governance (ESG) concerns. Therefore, a strong ESG sustainability proposition helps in creating value. This blog offers a brief understanding of what the ESG sustainability approach is and how it will help in maximizing profits.
What is ESG Sustainability Approach?
Before understanding how one can maximize their profits with this approach, it is crucial to understand what this approach means.
E is for Environmental Criteria: The E is the ESG that refers to the environmental criteria that are the most important concerns of the 21st century. The way in which companies use energy and manage their environmental impact has a far-reaching impact on our society and mother Earth. These criteria include:
- The energy that your company takes in and the waste it discharges
- Resources it needs
- Consequences for living beings as a result
S is for Social Criteria: The social impact may not be evident instantly, but it is one of the integral parts of the ESG framework. The way in which a company fosters its people and culture has ripple effects on the broader community. The inclusivity and diversity of the people in an organization pave the way for a sustainable future. This criterion addresses the relationships that your company has with the employees and the reputation it has built amongst the people and institutions in the communities where your business operates. It includes:
- Labour relation
G is for Governance Criteria: The governance criteria basically have 2 parts listed below.
- Staying ahead of violations, ensuring transparency, industry best practices, and dialogue with regulators.
- Internal controls, practices, and procedures govern and make effective decisions
Every company requires governance for its smooth operations.
Why is ESG Important?
Owing to the negative impacts, some companies have implemented regulations such as carbon taxes. Therefore, failing to act on ESG sustainability, some companies have started experiencing financial consequences. The only way in which they can avoid poor lending conditions and exclusion from capital markets is by showing that they have developed robust sustainability and ESG strategies.
Also, private investors have realized the importance of investing in companies with a robust and convincing ESG strategy. These companies positively affect ROI and reduce lending and revenue risks. Investors are considering the issues of ESG to manage investment risks. In addition, to outperform, the firms are also increasingly implementing the ESG Sustainability approach.
Benefits of the ESG Sustainability Approach
The ESG sustainability approach helps in maximizing profits. There are numerous benefits associated with companies investing in ESG strategies. A strong, robust ESG proposition can help create enormous business value across the enterprise. Here is the list of benefits of this approach:
Top Line Growth
A strong ESG proposition helps to ensure that the companies can expand the new market along with expanding their reach into the existing ones. When governing authorities trust an organization for its work and functioning, they are more likely to award them the access, approvals, and licenses that can provide the opportunity for growth. The ESG can also help in driving consumer preference.
With an ESG sustainability approach, companies can also reduce their cost substantially. Therefore, executing this approach can effectively help in combating the increasing operational expenses. Also, the companies which take their strategies further are made to work particularly well in comparison to the competitors.
Reduced Regulatory and Legal Interventions
A strong proposition can help companies to achieve greater strategic freedom by easing regulatory pressure. ESG helps in reducing the risk of adverse government action for companies. It can also engender government support.
Uplifting Employees Productivity
An ESG sustainability strategy that is clearly defined aids businesses in attracting and keeping top talent, boosting employee enthusiasm by creating a sense of mission, and boosting overall productivity. Shareholder returns and employee happiness are positively connected. It has long been noted that employees who feel connected as well as satisfied work more. Productivity may suffer from a weaker ESG proposition.
Investment and Asset Optimization
By directing money to more lucrative and sustainable alternatives, a strong ESG argument can improve investment returns. Additionally, it can assist businesses in avoiding stranded investments that would not be profitable due to long-term environmental problems. When it comes to ESG, it’s critical to remember that a passive strategy is typically an eroding line rather than a straight one. For instance, continuing to use machinery and facilities that consume a lot of energy can cost money in the long run.
How Does This Affect Businesses?
Companies must immediately implement sustainability and ESG policies, addressing the key issues of net zero and circularity. ESG factors will be valued higher by those who take them into account than by those who do not.
A sustainable approach is what we all must aim for. Schneider Electric is here to help you all maximize the profits along with leading towards a sustainable life. We are a leading digital transformation company. Our technologies are built on EcoStruxure, and harness the power of digitization, enabling our customers to become more efficient, safe, reliable, connected, and sustainable. In this competitive era, lead towards sustainable and efficient productivity with Schneider Electric