Organisations that Ignore ESG Strategy Are at Risk: Here’s Why

Over the past two years, Australian organisations have grappled with economic disruption; which, according to PwC, has resulted in corresponding shifts in social expectations.

As more businesses prioritise diversity and inclusion, sustainability, and climate change, it’s no wonder Environmental, Social and Governance (ESG) standards have blazed into the spotlight.

While ESG and business models that emphasise social responsibility aren’t ‘new’, according to Australia's Independent Financial Advisor, our nation is becoming increasingly interested in ethical investing. Organisations must continue achieving outcomes and profits – but today’s employees, investors, shareholders, and other key stakeholders want to see them making efforts to make the world a better place too.

The good news: there’s growing evidence to demonstrate how organisations that implement ESG practices outperform competitors. One Harvard Business School study found a $1 investment over 20 years yielded a $28 return in companies focused on ESG, versus $14 for those without the focus.

What does ESG mean, really? 

As McKinsey research demonstrates, every organisation has links to ESG concerns, regardless of whether they have a formal ESG strategy in place or not. How?  

Environment (E) – Every organisation affects, and is affected by the environment.

Social (S) – Every organisation operates within a broader, diverse society by forming social relationships with people, institutions, and communities.

Governance (G) – Every organisation has internal systems, practices, controls, and procedures for decision-making, compliance, and meeting the needs of its stakeholders.

This might trigger the question: is ESG the same as Corporate Social Responsibility (CSR)?

It’s a good question. The answer is – not quite.

As Indeed’s Global Head of Social Impact Abbey Carlton explains, CSR programs are varied, so they don’t provide a uniform understanding about what’s happening in an organisation overall. And they aren’t necessarily linked to its mission or operations.  

'In contrast,' Carlton says, 'ESG programs are usually tied to an organisation’s mission and practices; have clear, measurable goals; and are easier to compare across companies and industries because they’re often based on established ESG standards, such as those set by the U.N.'

Why should ESG matter to talent teams? 

More talent professionals recognise top next-gen talent and seek employers that align with their values. But what values matter most?

Let’s first consider that by 2029, millennials and Gen Z will comprise 72 per cent of the global workforce by 2029. According to Mercer, these groups place more importance on environmental and social concerns than prior generations, and expect more from employers on these issues.

Mercer’s research also reveals employers with high ESG scores are rated as attractive by current and future talent. A whopping 96% of Gen Y employees claim to be hugely concerned about the environment – and demand their employers take steps to become more sustainable.

When it comes to talent attraction, the incentive to invest in ESG is clear.

But who’s responsible?  

Perhaps it’s worth clarifying that the responsibility for ESG strategy shouldn’t fall on leadership or talent teams alone. Rather, successful ESG strategies are relevant to, and embedded in an organisation’s overall strategy, operations, and initiatives.

In practice, this can mean integrating ESG communications throughout your brand, across platforms. And, most importantly, establishing an ESG program with clear, actionable, and measurable goals. 

How do you implement an ESG strategy? 

If this has sparked your interest in implementing (or continuing to develop) your organisation’s ESG strategy, here are some recommendations, best practices, and examples to help you achieve success.

1.    Establish goals 

To determine what ESG goals are relevant to your organisation’s overarching mission, strategy and priorities, it may be useful to base them on widely-accepted ESG standards, such as the U.N.’s 17 Sustainable Development Goals.

For example, your organisation’s goals could include: evaluating your carbon footprint, labour practices, supply chain management, and governance structures; improving DE&I targets; providing investors and stakeholders with greater transparency and disclosure; or strengthening relationships with other organisations or community groups. 

2.    Draw a line in the sand

After defining your organisation’s ESG goals and targets, evaluate and report on your current performance. You can use these insights to compare where your organisation is now, to where it wants to be, and firm up goals that are specific, measurable and actionable.

3.    Create and implement an action plan

In creating a detailed ESG action plan, it’s a good idea for you and your team to keep internal and external factors in mind, such as industry benchmarks and regulatory requirements.

An effective ESG plan could include: specific actions and initiatives, key stakeholders, timelines, and metrics. After implementation, you can stay on track by regularly monitoring and reporting on progress.

4.    Communicate with key stakeholders 

Hitting ESG milestones is a clear way to demonstrate value. As such, you may like to recognise your organisation’s achievements by communicating performance, internally and externally.

Think: publishing sustainability reports with meaningful, comparative data, promoting content across key communication channels, or sharing results at events.

5.    Commit to continuous improvement 

All in all, ESG strategy isn’t a one-time program, but an ongoing process that requires consistent evaluation and improvement.

In today’s world of constant change and disruption, resilient organisations succeed by adapting to new circumstances and industry developments. Leaders and teams can quickly assess situations and re-orientate themselves, enabling them to think creatively, collaborate and find innovative solutions.

Adapting to ESG concerns is one of these solutions. Not only is it an effective response to shifting market expectations, promoting a shared purpose and trust – both internally and externally – will help your organisation develop and maintain a culture of resilience.

More Australian business leaders are realising: ESG strategy benefits organisations and people. As we've witnessed, promoting sustainable development and responsible corporate behaviour serves to protect the environment, improve working conditions, and promote fair and transparent governance; which ultimately will contribute to the well-being of society as a whole.

The bottom line? ESG isn’t just feel-good. It’s good for business.