ESG: It’s the talk of the business world.
Rising attention on corporate responsibility is driving more companies to focus on their environmental, social and governance (ESG) strategy — and it affects every stakeholder in a business.
Socially-conscious investors look at a company’s ESG practices when choosing which stocks to buy. ESG organizations help by providing ESG evaluations and scores. Consumers often make purchase decisions based on a company’s ESG record. Even potential employees take an organization’s ESG strategy into account when considering where to further their careers.
For these reasons, implementing an effective ESG strategy can significantly impact a corporation’s valuation and bottom line. To discover the basics of creating and prioritizing an ESG strategy for your organization — and why it matters — read on.
What is ESG and why is it important?
As we mentioned, ESG strategies for companies are made up of three elements: environmental, social and governance.
Environmental criteria consider how a company preserves the natural world. Social standards look at how organizations treat the people they work with and the communities where they operate. Governance refers to the processes for running a business, including internal controls, audits, executive pay and shareholder rights.
Aside from the argument that companies should behave responsibly because it’s the right thing to do, there are other rational reasons to focus on ESG issues:
- ESG business practices can help foster transparency that bolsters trust with customers, investors and employees.
- More and more, asset managers are looking for businesses with sound ESG standards as indications of long-term viability.
- Lawmakers around the world are debating and drawing up legislation that would regulate disclosure and reporting of ESG strategies. It seems sooner or later, most corporations will have a legal requirement to comply.
How ESG practices benefit organizations
Beyond the likelihood of higher productivity, greater efficiency and increased revenues due to better employee engagement and more loyal, satisfied customers, there are several additional potential payoffs for developing an ESG strategy:
Boost long-term financial performance
Reduce capital costs and improve a company’s valuation
Prepare to protect valuations as more regulators mandate ESG disclosures
Help maintain shareholder satisfaction with board leadership
Garner investor support for management’s long-term vision and plans
How to build an ESG strategy
Contrary to how it may appear, there is no single, standardized, one-size-fits-all ESG framework for companies to follow. Your ESG strategy must be adapted to your organization, your operating environment and your industry. To do this successfully, start by observing the following foundational steps.
Stay up to date on ESG regulations
Keep up with new ESG-related rules and reporting standards that apply to your company so you can plan ahead to ensure compliance.
Get stakeholders involved
After all, you are developing ESG standards to satisfy your investors, employees, vendors, partners and customers. Start by getting them onboard. Identifying and collaborating with all your stakeholders will help shape and direct a strategy they will support.
Build an ESG framework to move forward
Make a roadmap that stipulates your company’s aspirations, objectives and milestones. A clear plan for implementation will get you buy-in, hold your management accountable, and unify your company around your ESG goals.
Developing an ESG strategy that moves your company forward with financially sound, operationally efficient and socially responsible policies requires specialized knowledge and expertise.
Arizona State University has developed a relevant, in-demand curriculum that empowers learners to make informed, ESG-aware business decisions. Delivered by ASU CareerCatalyst and developed by world-renowned faculty from ASU’s W.P. Carey School of Business and the School of Sustainability—the first of its kind in the U.S.—these courses in foundational sustainability and ESG concepts will help prepare your organization to build an effective ESG strategy.
As a top-tier university for innovation, ASU applies its unparalleled core of knowledge to support organizations and learners in critical areas ranging from skill development to immersive leadership experiences. Through CareerCatalyst, ASU develops world-class workforce education solutions that align with business priorities and strategies and empower all learners to thrive in the future of work at every stage of their careers.