18 August 2022

More than ever, customers and employees alike are looking for sustainability and inclusion before they agree to engage and invest, which is where an ESG strategy enters the conversion.

An Environmental, Social, and Governance Strategy looks at a holistic way of managing business goals and diving into new markets. Not only will developing an ESG strategy make you more appealing to consumers, but it naturally leads you toward innovation.

Let’s talk about how embracing an ESG strategy could lead to accelerated growth and competitiveness for your company.

What is ESG?

Beneath each pillar of ESG is a complex system of decisions that a company makes related to its external and internal practices. Combined, ESG affects everything from how a company contributes to climate change to how it recruits new employees and how it builds internal ethical policies.

Not only does ESG create rapid growth within a company, but it can attract new external investors. Even the Harvard Business Review (HBR) says that using ESG as an investing strategy can pay off. In fact, the publication points out that more than $2 trillion has been contributed to ESG investment funds over the last two years with largely positive results.

What are the three principal ESG strategies?

ESG is divided into three pillars, or principal strategies. Each has its own unique purposes and will help build an overall strategy that cultivates growth and keeps a company in step with what matters to employees, customers, and investors.

Environmental: The primary question for this pillar is: How do our company’s practices affect the environment? Factors include: your company’s dependence on fossil fuels, the amount of energy you use, the amount and type of waste you put out (including pollution levels), and your water usage.

A business can improve its environmental criteria by switching to more renewable energy sources, focusing on biodiversity, making efforts to restore plant life in your area, adopting a carbon neutral goal, and minimising water usage. Changing a company’s relationship to the environment not only builds trust with the community, but it makes the company more sustainable in the long term.

As an example of this, Findex have invested in the installation of solar power, with the pilot program saving around 120 tonnes of CO2 per annum so far, and have committed to further purchasing renewable energy for office locations around Australia and New Zealand.

Social: The primary question here is: How does the company behave in its relationships? The social pillar of ESG relates to both internal relationships with employees and external relationships with customers and investors. The social pillar of ESG includes: the diversity, equity, and inclusion (DEI) efforts for hiring; employee health and safety efforts; data protection policies; stances on animal testing, human rights, and reproductive choice; and how the company manages consumer protections.

A company can better manage its relationships with employees, customers, and society at large by adopting policies and practices which are more inclusive and provide clear benefits to others. Social practices affect the reputation of the company and improving your relationship with the public will often yield more loyalty and substantial growth. One way this can be achieved is by developing a Diversity & Inclusion Strategy, which Findex will be launching by the end of FY25

Governance: The primary question to ask about governance is: How do internal policies and procedures affect corporate behaviours? The governance part of ESG includes: controls that keep the company legally compliant, tax strategies, accounting standards, ethical expectations and consequences, whistle-blowing policies, safeguards against financial crimes, and leadership behaviours.

In short, the governance part of ESG relates to how a corporation’s internal policies and expectations affect decision making. Ideally, the governance of a business is set up for good decision making that creates growth for the company and protects against unnecessary losses. Good governance should set employees up to act in the greater good of the company. The Findex Sustainability Strategy includes striving to meet the highest standards of good governance, and continuing to earn the trust of the clients we serve through doing honest business with integrity and efficiency.

Why is an ESG strategy important?

1. Building growth in new industries

Developing a strong ESG creates competitiveness for your company as more opportunities are available in sustainable industries. In Long Beach, California, at least one public-private infrastructure project selected companies based on their history of successful sustainability projects, for instance. In a more general sense, being focused on diversity and environmentally sound practices will attract employees and investors who want to do business with forward-thinking organisations.

2. Earning customer trust

Customers are becoming more concerned with sustainability and social issues than ever before. In fact, 75% of Gen Z consumers say they are more concerned with the sustainability of a product than the brand name when they are making a buying decision. Between 2019 and 2022, Gen X buyers became 42% more likely to pay more for a product if it was sustainable.

Earning a reputation for being sustainable and socially responsible can bring in new consumers and lead to exponential growth. If you are in a market where few competitors are able or willing to focus on ethical practices and renewable energy - integrating ESG into your reputation can pay handsomely.

3. Improving employee retention

Consumers aren’t the only people who care about corporate responsibility. Employees also want to work at a corporation that is invested in the environment and socially responsible policies. In fact, a whopping 96% of millennial employees say they not only care about their own responsibility to the environment, they also expect their employers to take steps toward sustainability. By making a concerted and sincere effort to integrate ESG policies into your corporate habits you could attract and attain top talent into your company.

4. Reducing costs

Reducing energy and water use is a cost-saving measure that allows a corporation to invest more money in research, development, and marketing. An ESG outlook encourages financial growth and cost cutting. McKinsey found that ESG strategies could increase operating profits by up to 60%, in part because reduced energy and water usage does so much good for a company’s profit margin.

5. Keeping up with new standards

The bottom line is that the world is moving toward sustainability and demands both social responsibility and corporate accountability. Companies that can adopt an ESG strategy are going to be leading the pack. Investors are going to look toward sustainability as a vital metric prior to making a commitment. They will also want to see a diverse group of minds making decisions so that bias does not keep a company stuck in linear thinking and outdated practices that leave money on the table.

How to develop an ESG strategy that works

While a good ESG strategy can benefit all companies, no matter the size, there is not one cookie-cutter plan that will work for every organisation. Your leadership will want to develop a personalised plan that considers your company’s needs and how fast you want to scale. Think about the following as you move toward a more ESG mindset.

1. Do you have the necessary experts on staff?

Do you have a director of DEI and a sustainability consultant? A company will need people on hand who have dedicated roles related to ESG strategy. Your current executives may not be the best for an ESG taskforce. Consider recruiting talent who have experience in this space and dedicating them to the specific project of developing an ESG strategy. You will also want people on staff who keep the company on track and ensure you are meeting prescribed goals.

2. What are your KPIs?

How are you going to measure whether your ESG strategy is working? By what percentage can you realistically cut your water usage and by what date? Key performance indicators (KPIs) are necessary to measure the success and failings of your ESG framework. There are thankfully many framework tools that will help a company keep track of sustainability goals. Social and governance goals are more qualitative, but you can still set goals for things like diversifying your staff and creating a corporate ethics guidebook.

3. What are your growth goals?

KPIs can’t be developed well if you don’t have a clear understanding about why you’re aiming to improve your ESG strategy. Do you want to reach a zero fraud standard by 2024? Perhaps you want to have an electric fleet of vehicles by 2030. Identify specific goals and understand how they will help your organisation grow in profits, size, or other key indicators.

By understanding your goals, creating relevant KPIs, and finding the experts to execute your vision, you can create an ESG strategy that will help you scale up and cut the fat.

Key takeaways

The right ESG strategy will grow your corporation and help it operate ethically. The results of investing in environmental sustainability, social responsibility, and internal governance are inevitable growth. As your consumers become more loyal and investors become more interested in your organisation, you can scale up at an accelerated pace. The efforts you invest in creating more sustainable and diverse practices will yield new opportunities.

We have recently launched our own Sustainability Strategy that covers our environmental impact, our inclusivity and integrity commitment and our strategy to continue doing right so that what we do today helps create a better world for tomorrow. View our Sustainability Strategy here.

A growing company has more complex financial planning needs. If you need help managing your wealth management portfolio or corporate finance strategy, Findex can help. We also offer business advisory, tax consultant, and general insurance services for companies in a variety of industries.