The culture of sustainability has had a profound impact on all areas of society in recent years. From the rise of veganism and the clean-living trend to the increased prominence of eco-friendly technology, sustainability has become a key focus for consumers across all demographics.
However, the big shift over the past couple of years has been an awakening within the business world, where leading enterprises are placing greater emphasis on integrating sustainable practices into their operational processes. These so-called ESG — or ‘environmental, social, and governance’ — principles now factor prominently in many companies’ marketing strategies as well as their recruitment protocols.
Given that CEOs play a central role in every organisation, how and why have they reacted to this shift towards an emphasis on ESG principles?
What Exactly Is ESG?
At the most basic level environmental, social and governance criteria refers to a set of standards that guide responsible business practice, and are used by socially conscious investors to screen potential investments.
More and more Investors are searching for companies that score highly on environmental and social responsibility scales as the climate crisis increases. ESG research firms can produce a score for a wide range of companies and the higher the score out of 100 the better a company is at fulfilling the different ESG criteria and the more socially and environmentally conscious the business is.
The three criteria used to score and evaluate companies for ESG investing include
Environment- What impact does the company have on the environment and what are they doing to help safeguard the environment. This includes things such as carbon footprint or any sustainability efforts that are made throughout a company's supply chain addressing climate change, for example.
Social- How does the company improve its social impact? Social factors include everything from a business’ relationship with its employees, suppliers and customers to racial diversity, LGBTQ+ equality.
Governance- This deals with a company’s leadership, its diversity, executive pay and how well the leadership interacts with shareholders.
Because the primary goal of ESG is to ensure companies remain profitable while also operating in an ethically responsible manner, these standards have long been an important component of corporate governance. However, in recent years, these practices have gained increased prominence in the business world.
Why Are CEOs Paying Attention to ESG?
Given the widespread popularity of sustainability among consumers and investors in the face of global warming, it’s hardly surprising that CEOs have taken note of this growing trend in recent years.
As such, many CEOs have begun to realize the value of incorporating ESG principles into their operations. IBM interviewed 3000 CEOs globally about their views and investment in sustainability, which revealed sustainability's dramatic emergence into the corporate agenda.
CEOs are paying greater attention to ESG’s mainly because the enterprise benefits are now tangible.
CEOs that successfully integrate sustainability into their business report a higher average operating margin than their peers.
CEOs who are leading with purpose and prioritising sustainability are outperforming their competitors even in times of instability.
- 37% of CEOs rate sustainability as their number one priority
- 83% expect sustainability investment to yield better business results over the next 5 years.
Government Compliance is Forcing Change But Not The Driver
There is an element of compliance from CEO’s with all the mounting regulatory pressure but this is not what provides the best business results. It is the
CEOs looking through a lens of transformation and with a commitment to making room for sustainability instead of seeing it as philanthropy who are making a real beneficial change to both their businesses and the environment.
There’s no denying that the culture of sustainability has had a profound impact on the business world in recent years. Indeed, these ESG principles have become an important focus for CEOs hoping to improve their company’s bottom line. As such, it’s important for CEOs to acknowledge and recognize the growing importance of ESG. Doing so will allow them to take advantage of these sustainable practices for the benefit of their company.
At SKOOT we can help your business improve their ESG score by calculating your carbon footprint and offering solutions to offset these emissions.
Visit SKOOT to start your journey to Net-Zero.