How does ESG create value?

ESG (environment, social and governance) principles are everywhere these days. 

The movement is so strong that your company might outpace you. In other words, you are part of a firm that incorporates ESG into strategy; you know that doing so creates value, but you’re not clear on exactly how this happens. 

ESG has its fair share of critics, who say it’s too driven by principles and not enough by business viability. While it’s true that the movement is grounded in ethical principles, it would not be as popular as it is today without producing monetary value as well. 

Here are some of the main ways this can happen:

ESG investing is mainstream. Some of the world’s most prominent investors, like BlackRock, are already championing the cause. Smaller firms and individuals are following suit. 

Last year, Bloomberg estimated that the value of ESG assets worldwide could top $50 trillion by the middle of the decade. This is a colossal figure and speaks volumes about the opportunities on offer. 

Embracing ESG means your company strategy aims to decrease, minimise, or entirely avoid harming the planet, its people, or the firm’s own governance. If countless investors controlling vast amounts of money identify with this strategy, your pool of funding increases.

It’s not just investors that are coming around to ESG. Consumers and other stakeholders are as well. 

Because of this, when you embrace ESG, you’re embracing values that land positively with your client base. You’re establishing your firm as a leader in future standards and an achiever within a sustainable community. 

These kinds of actions might be costly shifts in business models now, but they can easily ensure healthy revenue streams for decades to come.

Ever heard of climate quitting? It’s when employees leave (or turn down) a job because they don’t feel the company does enough for the environment. It’s a real and growing trend, particularly among younger generations. 

More than that, though, it also demonstrates the unshakable principles of future workers and the idea that if your company’s ESG strategy is strong, you’ll have happier staff, more productivity… in short: more value for your business. 

Imagine a future where your company can avoid paying for unnecessary waste, emissions violations, or lawsuits borne from workplace disagreements. 

These things seem like pocket money on their own, but add them up, and you might see years’ worth of avoidable expenses that an ESG strategy could have prevented.

It’s no surprise that governments are getting more challenging in most business areas. Regulations are mounting, and the pressure is increasing. The same is true for ESG. 

For example, most large corporate entities must now comply with emissions targets, waste management targets, diversity targets, and increased transparency in governance reporting. 

Failing to do these things means regulators may launch legal battles. This takes time, personnel and – if found guilty of shortcomings – additional money for financial penalties. 

ESG strategies help firms avoid these scenarios.

If you’re asking, ‘how does ESG create value’, remember that the above list is not complete. It’s just a collection of the most common examples.

There are more ways for ESG to create value; it just depends on your company or industry. Every situation is unique. 

As well as this, keep in mind that while the above covers ways of creating value, they also cover ways of losing value if you mismanage the relevant tasks. Ultimately, when it comes to ESG, you should know what you’re dealing with. 

If you need more knowledge, don’t worry, you can train to maximise your potential.