The Triple Impact of ESG: Building Trust with Investors, Customers, and Talent

This informal CPD article, ‘The Triple Impact of ESG: Building Trust with Investors, Customers, and Talent’, was provided by Gamma Business Communications, a leading supplier of Unified Communications as a Service (UCaaS) in the UK, German, Spanish and Benelux business markets.

Now more than ever, companies are looking for partners they can trust to prioritise good business practices, people, and the planet. In the UK, the business world is increasingly recognising that doing the right thing for people and the environment is not only a moral imperative but also makes good business sense. And it’s not just the business world: individuals are also basing their employment decisions on their moral and social beliefs. They want to work with partners who share their values around social and environmental responsibility and who are committed to making a positive impact in their communities. So, how can businesses ensure they are meeting the expectations of prospective customers, investors, and employees?

Understanding ESG

It all comes down to ESG. ESG stands for environmental, social, and governance. It’s a framework for evaluating the sustainability and ethical impact of an organisation. ESG performance is becoming increasingly important to customers, investors and prospective employees, as they are looking for companies that are committed to making a positive impact on the world.

Breaking it down

The Environmental aspect of ESG focuses on a company's efforts to reduce its ecological footprint. What does that involve? Well, it covers things like energy consumption, emissions, waste management, and water usage. Companies with strong environmental performance minimise their negative impact on the environment, contribute to mitigating climate change, and preserve natural resources for future generations. This doesn’t mean there’s ZERO impact – more that the business is doing everything it can to mitigate the impact it does have.

The Social component of ESG covers a number of areas such as a company's relationships with its employees, customers, suppliers, and the communities in which it operates. This encompasses issues such as health and safety, diversity and inclusion, and human rights. Companies that do well in this area create positive work environments, maintain fair and ethical relationships with their stakeholders, and contribute to the wellbeing of the communities they serve. In layman’s terms, it’s not just a lot of pretty words – these companies are really trying to live by the values they profess.

Finally, Governance refers to the way a company is managed and how it makes decisions. This includes aspects such as corporate structure, executive compensation, board composition, and business ethics. Companies with strong governance practices demonstrate transparency, accountability, and ethical behaviour, leading to better decision-making and reduced risk of scandals or legal issues. Obviously, a truly ethical company won’t simply try to avoid legal entanglements – they’ll do the right thing because it’s simply the right thing to do.

So that’s what ESG actually means – where are the benefits when it comes to building trust with investors, customers and employees?

Benefits of ESG Performance

Well, there are several reasons ESG performance is critical to building that trust.

Demonstrating Responsibility: ESG performance shows that a company is taking responsibility for its impact on the environment and society. This can be a major selling point for customers who want to support businesses committed to sustainability, investors looking to put their money somewhere morally sound, and prospective employees looking to work for a company that fits with their personal ethos.

Reputation Enhancement: Commitment to ESG can help improve a company's reputation and attract positive media attention, which is beneficial for attracting customers, employees and investors to whom environmental and social issues matter.

Risk Mitigation: This is where it gets more pragmatic - by taking steps to mitigate environmental and social risks, companies can avoid litigation and fines, thereby reducing their overall risk. This area is of particular interest to investors who want their money in safe hands. Of course, it goes without saying that risk mitigation should be seen as a bonus effect of an authentic desire to run an ethical business.

Improving ESG Performance

So we’ve looked at what ESG is and the benefits it can bring in terms of building trust. That’s all very useful to know, but what can companies actually do to achieve these goals? The suggestions below will apply to every single business in the world, to a greater of lesser degree…

• Setting ambitious sustainability goals and targets: By establishing clear, measurable objectives that make sense to your specific business, your company can track its progress and demonstrate their commitment to sustainability.
• Investing in renewable energy and energy efficiency: Transitioning to cleaner energy sources and improving energy efficiency reduces greenhouse gas emissions and contributes to a low-carbon economy. The actions needed here will vary depending on the type of business – but every business can improve somewhere.
• Reducing waste and pollution: Implementing waste reduction strategies and minimising pollution helps protect the environment and preserve resources for future generations.
• Promoting diversity and inclusion in the workplace: Embracing diversity and fostering an inclusive culture creates a more innovative and productive workforce while signalling a commitment to social responsibility.
• Adhering to high ethical standards: Upholding ethical business practices, such as combating corruption and ensuring fair work practices, demonstrates a commitment to responsible governance.
• Being transparent about ESG performance: Openly sharing information about a company's ESG initiatives and achievements builds trust with stakeholders and showcases their commitment to sustainability.

Now, you may be wondering where the evidence is to back all of this up? Let’s take a look at some statistics and findings that show how important ESG is to investors, employees and customers.

The Importance of ESG to Stakeholders

Recent research by EY found that 63% of companies believe that strong ESG performance is critical to building trust with customers and investors. This shows that businesses understand the importance of putting people and the planet at the heart of their operations. Similarly, 70% of investors believe that ESG issues have a material impact on a company's long-term success. This highlights the growing importance of environmental and social considerations to the financial community.

ESG and Customer Loyalty

Customers are increasingly seeking suppliers who prioritise ESG, focusing on employee welfare, environmental responsibility, and overall wellbeing. According to an Accenture survey, 62% of customers desire companies to advocate for pressing and widely acknowledged issues such as sustainability, transparency, and equitable employment practices. Furthermore, customers are more inclined to spend extra for products and services from companies dedicated to fostering a positive social and ecological impact. Deloitte's research reveals that a significant 71% of millennials are willing to pay a premium for environmentally and socially responsible brands.

Businesses that prioritise ESG practices and demonstrate a commitment to social and environmental responsibility are likely to build stronger relationships with their customers and partners. They are more likely to be viewed as a trusted partner and advisor, rather than just another vendor. Customers are more likely to take advice from businesses with a good reputation for ESG practices because they feel that the advice is genuine and tailored to solve their problems.

A study by Nielsen found that 66% of global consumers are willing to pay more for products and services from companies that are committed to sustainability. For example, Patagonia, a clothing company known for its commitment to environmental sustainability, uses recycled materials in its products, donates 1% of its sales to environmental causes, and offsets its carbon emissions. As a result of its strong ESG performance, Patagonia has a loyal customer base of people who are willing to pay more for its products because they believe in the company's mission.

ESG and Employee Attraction and Retention

Of course, it’s not just about the customers, it’s about employees too. ESG performance has a big impact on how your business is viewed by prospective employees, as well as how your existing employees will perform. Being a sustainable business is important to attract talent. In a Deloitte survey¹, 49% of Gen-Ss and 44% of millennials said that they had made career choices based on their personal ethics. Increased Productivity: Being sustainable will lead to employees being more motivated to perform better. Sustainability reduces costs and can affect operating profits by up to 60%, according to McKinsey & Company^2.

ESG and Investor Relations

A PWC study³ found that a substantial 80% of investors consider ESG as a crucial element in their investment decision-making process. Additionally, nearly 70% of investors believe that ESG factors should play a role in determining executive compensation targets. About half of the investors surveyed also indicated their willingness to withdraw investments from companies that fail to adequately address ESG concerns. So it’s not just about attracting investors – it’s about keeping them.

A study by MSCI⁴ found that companies with strong ESG performance have outperformed their peers in the stock market over the long term. This suggests that ESG performance can be a good indicator of future financial performance. For example, Unilever, a consumer goods company that has been a leader in sustainability for many years, has reduced its water usage by 60%, its energy usage by 30%, and its greenhouse gas emissions by 63% since 2008. As a result of its strong ESG performance, Unilever's stock price has outperformed the market by an average of 10% per year over the past decade. You can just imagine how happy the investors have been with both the ESG and stock performance!

Conclusion

In today's business world, ESG performance is essential for building trust and achieving long-term success. Companies that prioritise ESG practices are more likely to build stronger relationships with customers, partners, employees, and investors. By focusing on environmental, social, and governance factors, businesses can demonstrate their commitment to sustainability and ethical business practices, ultimately contributing to a better world for everyone.

We hope this article was helpful. For more information from Gamma Business Communications, please visit their CPD Member Directory page. Alternatively, you can go to the CPD Industry Hubs for more articles, courses and events relevant to your Continuing Professional Development requirements.

References

1. https://www.deloitte.com/global/en/issues/work/content/genzmillennialsurvey.html

2. https://www.weforum.org/agenda/2022/06/why-sustainability-is-crucial-for-corporate-strategy/

3. https://www.pwc.com/gx/en/services/audit-assurance/corporate-reporting/esg-investor-survey.html

4. https://www.msci.com/esg-101-what-is-esg/esg-and-performance