By now, it’s well established that ESG integration is not only good for the world but also good for business – a net win, in other words.
Indeed, a study by McKinsey concluded that “the value at stake from sustainability (ESG) concerns can be as high as 70% of earnings before interest, taxes, depreciation and amortisation.” Put another way, up to 70% of a business’s potential earnings could be lost to ESG risks.
In a nutshell, ESG integration is the process of managing environmental, social and governance risks that might negatively impact companies and their stakeholders, including employees, customers, suppliers, and society and the environment at large.
The following questions apply to all industries. One may think low-impact sectors, such as tech, are immune to these concerns. But what about those ten international business trips that management takes per year, which collectively produce over 20 tons of carbon dioxide?
Asking ESG questions yields several important benefits to a business. Smart ESG policies result in employees who are more engaged and responsible, positively affecting retention rates and lowering the cost of training new hires. These questions are also, in essence, a method of risk and cost management. Every major industry, be it agri-business, textiles, chemicals, manufacturing or transportation, has natural resource risks tied to it.
Prioritizing water and energy conservation and waste minimization decreases costs associated with these processes simply through using natural resources more responsibly. Risks associated with human rights might be less systematic, but when they do occur, they can have a huge impact – a major sexual harassment or discrimination related scandal, for example, can deeply affect a company’s reputation and morale.
Integrating ESG into your business operations does not have to be daunting. Rather, it is an opportunity to go back to basics, to revisit your company from the ground up and ask those fundamental questions of responsibility, resourcefulness, and community.