Future-proof your business with ESG

By: Robert D. Cedergren, CPA, CGMA, CITP, CISM, CISA, CGEIT, Partner In Charge, Risk Advisory Services at Wipfli LLP

Businesses in many industries are recognizing the need to envision, develop and implement meaningful environmental, social and governance policies (ESG). Just as important is how you communicate them with your investors, customers and employees. A broad range of sustainability practices helps attract and retain talent, strengthens your relationships with all your stakeholders and reinforces your brand.

It matters that you walk the talk and continually look for new ways to increase and refine your ESG efforts, with an emphasis on measurable results. 

ESG is just as important for its potential benefits to society as it is for its profitability.

Demand for ESG reporting transparency is growing among consumers, job candidates, investors and vendors. People want their dollars and talent to go to organizations that reflect their values — which can directly impact your bottom line.

Making the commitment to ESG does much more for your business than just boost its reputation for sustainability. Incorporating ESG practices encourages your business to be proactive with risks, costs and trends and helps you improve your current and future financial performance.

Create value through ESG

Research suggests ESG influences financial performance and value creation in a variety of ways:

• Talent: Many employees, and younger talent in particular, are interested in working for companies making a positive impact in the world. Having strong ESG practices in place can help attract top job seekers and engage employees who want to know their work is making a difference.
  
  Plus, fair and socially minded labor practices (e.g., living wage, pay equity, diversity and inclusion, employee well-being) have benefits beyond attraction and retention. These practices are tied to innovation, productivity and greater shareholder value.
  
• Customer affinity: Consumers surveys report they’re more likely to spend money with businesses that prioritize sustainability and social impact. People are willing to pay more for safer, healthier and environmentally conscious products. ESG efforts lend themselves to stories your customers care about. Make these achievements part of your brand message and communicate them to your audience.
  
• Financial performance: Relatively small changes — such as moving to paperless job tracking, relying on cloud servers, using recycled material and adding energy efficiency upgrades — can deliver fast ROI and improve your bottom line.
  
• Risk management: Reduce regulatory and legal challenges and avoid fines and enforcement actions. Strong ESG practices can be a proactive way to ward off a variety of legal, financial and reputational risk. For example, ESG protocols may reduce improper waste disposal or vulnerability to consumer privacy breaches.
  
• Enterprise value: When exit plans include selling to a private equity or larger strategic buyer, consider that ESG practices could drive up business value. While ESG may not yet play a large and consistent role in M&A, dealmakers expect the focus to accelerate.

• Access and approvals: Good corporate citizens may be more likely to win public-private partnerships, licenses or resource extraction contracts. Companies able to show they are responsible stewards win public support to manage additional resources.
  
• Leveraging data: Flex your business analytics. The data you need to run a strong ESG effort will inform other priorities. The better you get at gathering and analyzing information, the better decisions you will make — in any aspect of your operation.
  
• Driving growth: A commitment to ESG can be a driving force for innovation and evolution. Vast markets are emerging in clean energy, electric vehicles, plant-based proteins and compostable packaging, just to name a few. Adopting and leading on ESG could be the path to the next great breakthrough.

Focusing on ESG principles not only impacts your business’s current operations, it also supports long-term health. ESG practices can change the way you evolve and innovate, helping you manage market demands and build resiliency. It’s an invaluable way to future-proof your business.