From the sudden surge in the popularity of green finance to the pervasive impact of ESG factors on consumers and their purchasing decisions
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Aligning ESG with Corporate Strategy to Gain a Competitive Advantage - SG Analytics.pdf
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Aligning ESG with
Corporate Strategy to
Gain a Competitive
Advantage
From the sudden surge in the popularity of green finance to the
pervasive impact of ESG factors on consumers and their
purchasing decisions, the world is advancing towards extending
business cases to build a solid ESG strategy.
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With companies facing a turbulent economic landscape, and the
planet encountering a growing climate emergency, businesses
are rethinking their traditional operations frameworks that are
more focused on shareholder profit. Today the challenge lies in
identifying purpose-led businesses that shoulder a wider set of
responsibilities. However, embracing these responsibilities does
not need to be to the detriment of success. Solely embarking on a
sustainability journey could help in gaining a competitive edge.
Getting Started on the Sustainability
Journey
The global COVID-19 pandemic fueled conscious consumerism.
Organizations started doubling down their commitment to
delivering net zero or carbon-neutral emissions. Companies
became more attuned to societal and consumer concerns and
their own governance with sustainability and social responsibility.
As a result, consumers' perspectives started shifting to greener
companies. This has increased the adoption of environmental,
social, and governance (ESG) strategies as a competitive
advantage.
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Read more: Integrating ESG in Company Culture – A Move to
Drive Resilience
Organizations are opening up to the idea of starting their
sustainability journey by including tools that help gain the overall
assessment of their policies, business values, and current ESG
impact. While it is a hard journey to undertake alone, it could be
more beneficial and impactful if businesses together make this
into a larger movement. To reduce their carbon footprint,
businesses are setting up sustainability departments to allocate a
portion of their operations as well as funds to developing
sustainability strategies.
Investing Resources in Sustainable
Operations is More of a Need than an
Option
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The rising climate change crisis is predicted to negatively impact
business operations in the future. Taking into consideration today's
urgent problems caused due to the pandemic, including supply
chain and manufacturing disruptions, investors are raising
concerns about how prepared businesses should be to deal with
global turmoil and other potential environmental disasters.
Investors want to understand the steps companies are
undertaking to improve their resilience to such impacts.
Building a successful sustainable business begins internally.
Initiating conversations about business values is likely to have
significant benefits on employee motivation as well as
engagement. Millennial and Gen Z workers are scrutinizing to align
their personal values with those of their employers or
organizations. Setting out an intentional approach to ESG issues
can assist organizations in improving their recruitment processes
as well as boosting their employee satisfaction.
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There are countless resources and articles available that can
encourage and guide organizations in creating an impacting
framework to make informed investment decisions. At the core of
all ESG decisions and developments lies a five-step process. It
involves-
• Defining ESG targets & goals
• Assessing the current state of operations and developing
a strategic plan
• Aligning the ESG values with like-minded partners
• Implementing proactive changes in the processes
• Reporting data & insights
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Businesses that do not prioritize investing in environmental
sustainability will likely lose any competitive edge they may have
had. Owing to these circumstances, many investors are now
searching for companies willing to commit their resources to align
profit with purpose.
Read more: ESG and Sustainable Investing: A Guide for ESG-
Focused Investors in 2022
The 'S' in ESG is a Priority for Employee-
Related Practices
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For some businesses, sustainability offers a new way to attract as
well as retain talent. It is garnering major focus after the post-
COVID and the Great Resignation. However, employees care more
about the way businesses interact with their internal and external
communities. Socially responsible businesses are perceived as
ones that understand the connection between relationships and
profitability and implement frameworks that value and nurture key
relationships. Therefore, investors are viewing businesses that
engage in questionable labor practices or ignore shifts in cultural
expectations as riskier options.
Improving the diversity of corporate boards is an initiative that is
characterized as a social responsibility aspect of ESG practices.
Enterprises can take it a step further and incorporate the company
diversity hiring practices into senior leadership compensation.
McKinsey’s Diversity Wins report highlighted the need for a strong
link between profitability and board diversity, inclusive of both
gender diversity along with ethnic and cultural diversity.
Establishing Purpose-Driven
Governance
Investors are becoming more attuned to good governance. While
they are interested in the bottom line, they equally care about
building a work environment that is diverse, equal, and inclusive.
One that supports human rights is responsible for employee
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development and is equally attentive to other environmental and
social issues.
The COVID pandemic brought to light the significance of programs
that care for employees. The pandemic led to worker shortages;
employee well-being programs gained significance, and we
integrated strong tools for maintaining a well-balanced workforce
into the company framework.
Enterprises without strong governance practices are likely to suffer
from a lack of structure that encourages accountability.
Organizations that fail to align their governance policies and
practices with purpose-driven values risk devaluing their
corporate brand and integrity.
Read more: The ESG Rating Phenomenon: A Guide to Understand
ESG Ratings
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Making ESG a Competitive Advantage
Metric
Environmental, social, and governance (ESG) topics are gaining
center stage in the corporate agenda. Many organizations that are
mired in old ways of thinking are now perceiving ESG as
compliance or corporate responsibility. This has led to the hiring
spree of chief sustainability officers who are mobilizing
organizations to adopt a sustainability lens. While they have equity
and inclusion on their scorecard, they are still trying to build equity
and inclusion into their culture and business. They are employing
the ESG agenda to guide the organizations into making their
biggest strategic decisions.
A comprehensive ESG plan and good scores are significant not
only for the environment, society, and governance but also for
building an image of being sustainable leaders. ESG performance
helps in improving the capital cost and attributes this to the
following factors:
• Top line growth
• Efficiencies that help in reducing cost
• Transparent relationships with regulators
• Talent acquisition as well as retention
• Investment optimization
For businesses to gain a competitive advantage, they must
commit to developing their ESG resources, knowledge, and
planning along with execution.
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Key Highlights
• Many organizations, tools, and resources are enabling
businesses to embark on their sustainability journey.
• ESG factors are expanding beyond boundaries and
shaping access to capital, purchasing decisions of the
consumer, and supply chains.
• Aligning business values with the team can help
businesses in boosting employee motivation and
recruitment success.
• Developing an intentional ESG strategy enables
enterprises to gain a competitive advantage in the
growing markets.
• While sustainability concerns are not going away
anytime soon, a solid ESG strategy can help
organizations to be the first mover and gain a
competitive advantage.
Read more: ESG metrics for Businesses - Time to Deliver the
Promise of Sustainability
Incorporating ESG Into Business
Strategies
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Prioritizing ESG is no longer an option for organizations. The ones
who want to be competitive and profitable are incorporating
sustainable strategies at the very core of their policies. However,
the best approach to integrating ESG practices varies depending
on the company. Moreover, ESG strategies can conflict with other
operational goals if not assessed holistically. With the most
effective practices built on brand values in place, businesses are
taking advantage of the strategies and behaviours of stakeholders
who are willing to support their vision of a sustainable framework.
All boards can take one step to incorporate ESG objectives into
their company strategy rather than viewing them as an isolated
entity. Establishing a corporate reporting system for ESG problems
is another effective way to develop stronger ESG-driven strategies.
Mandating certain levels of reporting and making it available to
investors and stakeholders will also contribute to creating
transparency and, ultimately, gaining greater trust.
Companies that incorporate environmental, societal, and
governance issues into their operational policies and programs
are being positioned well among their competitors. By filtering
corporate and social goals through an ESG lens, businesses can
attract investors and other influential stakeholders, thereby
aligning their company's purpose with their profitability.
Making a move towards a sustainable future is a win-win because
it is: better for business, people, as well as the planet. With today’s
climate threats giving rise to an uncertain tomorrow, businesses
need to seize the chance to make a significant difference and gain
a competitive advantage by establishing themselves as
sustainability leaders.
With a presence in New York, San Francisco, Austin, Seattle,
Toronto, London, Zurich, Pune, Bengaluru, and Hyderabad, SG
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Analytics, a pioneer in Research and Analytics, offers tailor-made
services to enterprises worldwide.
A leader in esg consulting firms, SG Analytics offers bespoke
sustainability consulting services and research support for
informed decision-making. Contact us today if you are in search
of an efficient ESG integration and management solution provider
to boost your sustainable performance.