The effects of the COVID-19 pandemic and climate change have had a significant impact on the global economy recently. This situation has led many businesses to realize a greater need to accelerate investment in a long-term initiative – ESG strategy.
Therefore, with increasing alertness and demand for environmental protection, implementing ESG strategy is now more important than ever for businesses. Obviously, incorporating ESG is not only essential in protecting natural resources but is now seen as an emerging factor for financial growth.
Key Takeaways
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- The meaning and evolution of ESG?
- Why is every business striving to adopt ESG in their business strategy?
- 7 steps to integrate ESG strategy into your business
ESG Strategy – The Meaning of ESG
ESG stands for:
Enviroment
Social
Governance
ESG is a set of standards that not only measure factors related to sustainability, but also the impact of a business on the community. When it comes to capital markets, investors are now considering ESG as a criterion to evaluate the financial performance. It is also a framework for analyzing the future growth potential and sustainability of the business.
There are three major pillars of ESG:
- Environment criteria refers to the interaction between companies and environment:
- Climate change
- Sustainable energy management
- Water and pollution management
- Greenhouse gas emission
- Social criteria refer to the relationship between the organization and its stakeholders:
- Labor standards
- Working conditions and worker protection
- Human rights
- Customer satisfaction
- Governance criteria refers to the internal practices and policies for leading and managing a company:
- Tax strategy
- Corporate risk management
- Board structure
- Corruption and bribery
The Evolution of ESG
Before the ESG strategy was developed, many individuals and organizations have also expressed about the people and environment in many ways.
1980s
EHS
(Environmental, Health, and Safety)
Develop environmental and employee regulations
1990s
CS
(Corporate Sustainability)
Reduce environmental impacts beyond legal requirements
2000s
CSR
(Corporate Social Responsibility)
Respond to social issues by philanthropy and employee volunteerism
2020+
ESG
(Environment, Social, Governance)
Focus on environmental, social impact and governance structure
Why Is Every Business Striving to Adopt ESG in Their Business Strategy?
With the increasing requirement for environmental action by customers, businesses are now focusing more on implementing the ESG strategy. Certainly, achieving high ESG standards gives businesses more opportunities to attract target customers, while also facilitating branding and innovation.
Besides that, more and more investors nowadays consider the ESG sustainable development criteria before deciding to invest in any businesses. Therefore, with ESG-oriented strategy, companies can create value for all their employees, customers, suppliers and wider society including the environment.
1. Improve efficiency & cost saving
Working towards ESG goals enables businesses to minimize its operating costs and contribute to reducing environmental footprint. Obviously, by implementing ESG standards, companies can track key indicators related to energy or water consumption. These metrics allow businesses to plan efficiency improvement programs, thus contributing to cost reduction associated with energy and water usage.
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2. Build customer loyalty
In general, having an ESG program in place helps companies attract new potential customers and build brand loyalty. Based on ESG, consumers as well as clients nowadays focus on what a company does to support sustainability. Thus, companies that adhere to ESG principles can retain and attract more customers by communicating their ESG efforts to customers.
3. Boost employee productivity
It is notable that companies with stronger commitments towards society will enable to attract and recruit more talent. Moreover, working for companies with ESG goals will be able to increase employee satisfaction, promote positive outcomes, leading to longer retention.
3 Challenges of Integrating ESG into Organisations
As can be seen, a strong global movement towards ESG-focused investment has become more and more developed in recent years. Many businesses have realized that integrating ESG metrics into their operations is essential to ensuring growth in the long run. However, implementing an ESG program can pose many challenges for organizations.
- ESG data collection: A list of ESG assessment criteria that require data collection can be a challenge due to its authenticity and statistics. These data need to be checked and updated in real time when businesses want to ensure effective ESG-related operations.
- ESG Governance Issues: Failure to follow ESG policies and regulations correctly can result in reputational damage, compliance costs, and potential loss of business.
- Human resources: Lack of experienced people who help advance the sustainability goals can be a challenge to ensure a successful ESG strategy.
7 Steps to Integrate ESG Strategy into Your Business
With the increasing investment and public demand for organisations to be transparent about their environmental, social and governance policies, it is important for businesses to create an effective ESG strategy.
Here are seven steps to implementing an ESG strategy that gives companies a framework to building effective ESG processes.
Step 1
Identify problems and opportunities to prioritize different issues and initiatives as you develop your ESG strategy
Step 2
Clearly assess the current state of the business to evaluate existing programs, policies, and statistic within the organisation
Step 3
Set future goals to track progress and ensure that current actions are making positive changes
Step 4
Conduct a gap analysis to identify what may be missing so you can strategize and plan accordingly
Step 5
Develop appropriate framework to ensure reasonable approach for key actions before sharing ESG strategy with customers and stakeholders
Step 6
Set action plans and measure KPI’s to simultaneously integrate an ESG focus into existing processes and practices
Step 7
Report progress of ESG strategy in order to ensure the right data is being updated
ESG and Sustainability – What’s The Difference?
“ESG” and “Sustainability”, these terms can be described as organization efforts to make positive impacts on the planet and people. Thus, are they the same or different?
Over the years, integrating ESG into the core business strategy has played an important role due to its long-term value. Not only does ESG practice bring financial results, but it also makes a positive contribution to society. Indeed, it has been proven that companies following ESG have higher growth rates, financial optimization and higher employee productivity.
However, many challenges persist to this day as businesses work to transition to a sustainable and future-proof business model. Therefore, it is necessary to identify the challenges of ESG standards in the new age, which helps Vietnamese businesses adapt, and contribute to increasing business value.
