By Emma Isichei, Chief Marketing Officer, MHR

All stakeholders are becoming more knowledgeable about sustainability and so firms must develop water-tight strategies to stay ahead

The rising expectation that every company’s stakeholders have in relation to Environmental, Social and Governance (ESG) is one of the burgeoning risks facing the corporate world. Every firm’s suppliers, customers, partners and employees are laser-focused on ensuring that the companies they have a relationship with not only think about their impact on the environment, but act upon it too. And not only do they need to act upon it, they must also have a clear and concise plan that is both actionable and measurable to ensure genuine progress can be achieved.

According to consultancy firm PwC, ESG is the “number one topic investors want to discuss with directors during shareholder engagements”, and it seems some businesses are responding. In the auditor’s Annual Corporate Directors’ Survey, nearly two-thirds (64%) of directors say their strategy is tied to ESG issues.

However, it’s likely that this number will grow in the near future, and so every business needs to up its ESG game.

ESG is not an option, it’s a necessity

Having a sustainability approach is now non-negotiable for any firm. 

Regardless of the industry, sustainability should be at the core of the executive agenda. This is because a true understanding of ESG not only means that the leaders of a business understand the risks facing their firm, but they comprehend the opportunities too. 

This is vital in a world where all types of stakeholders are making decisions about how truly invested they believe a company is in its ESG goals. A First Insight survey found that 73% of Gen Z consumers would pay more for sustainable products, while a Deloitte survey found that 49% of the Gen Z cohort had made career choices based on personal ethics. Furthermore, a Gartner paper found that 85% of investors considered ESG factors in their investment decisions.

This focus by the outside world on every company’s ESG efforts means that those firms that have Corporate Social Responsibility (CSR) frameworks must develop these to become fully fledged sustainability strategies.

Revolution required

Broadly speaking, CSR is an inward-looking construct, focusing on processes and company culture, while ESG relates to a measurable set of targets and goals that external partners and investors look at when evaluating a company.

Having an ESG framework can assist firms in identifying areas of waste within their organisation, while it can also help assess whether the actions and processes a firm engages in help to create a responsible and ethical company.

Although CSR is not entirely redundant, it should not be the goal for firms. It may be a useful starting point for organisations looking to create an ESG framework, though, as it would likely mean that business leaders were already focused on acting in a responsible, sustainable and ethical manner.

There is no cookie-cutter approach for creating an ESG framework from scratch, or for developing a CSR strategy into an ESG one, but it’s vital that firms get their plans right. Worryingly, an Insead survey found that 70% of board directors said their board was ineffective at integrating sustainability into governance and strategy building, while only a quarter of board directors say boards understand ESG risks.

Clarity required

With intense scrutiny on all ESG plans by stakeholders, and recent moves by the government to make climate-related reporting compulsory for the UK’s financial institutions and listed firms from 2023, it’s incumbent on businesses to develop transparent, honest and purpose-driven strategies.

At MHR, our approach is clear: Planet, People, Profit. These touch on the environment, social, and economic strands of our business. An example of this is our two new office buildings due for completion later this year. Both are receiving significant investment in solar energy and will also have 2-3 times the normal level of insulation to ensure that both buildings are almost carbon-neutral and have an A energy rating, compared to the D, E or F most buildings have.

In terms of people, the ‘social’ aspect of ESG, it’s not just about considering how to best look after your employees, but the wider human element of a business, both internally and externally. Internally, this means focusing on what employees actually want, offering the likes of ongoing professional development and employee benefits that support their needs, which can often be as important, if not more, than pay. 

Externally, this can translate into investing in your local community. Each business can play a positive role in the lives of those in their local community. At MHR we work with local charities and community events, hire local talent, and work with local suppliers wherever possible. If an organisation does the right thing, not only does it foster stronger community relationships and make a positive impact, but it can also bolster employee job satisfaction, engagement, and performance. 

And finally, profit is also critical – firms need to grow to enable them to support more people and, crucially, give back to society in a bigger way. That’s why, at MHR, we’ve aligned our strategy to the UN’s Sustainable Development Goals, with a commitment to creating a sustainable, local community. Again, by providing job opportunities to local people and using local suppliers, not only are we providing a significant financial injection back into the community, but by shortening our supply chains we are reducing our carbon footprint too.

Taking a sustainable approach also makes great business sense. There is a growing body of research that suggests investing in environmentally-minded companies can produce better returns for investors than those with a lower-than-average environmental performance.

This potentially creates a virtuous circle for firms with robust ESG plans; not only will they be more aware of the dangers to their business models from climate change and be able to identify the aspects that could be altered to enhance their operations, but creating an ESG strategy will make them more attractive to investors and, potentially, give those investors better returns.

Every business leader already knows they have no option but to create an ESG strategy. However, it’s those that understand it isn’t simply a tick-box exercise, and accept that hastily cobbling together an unsatisfactory plan will be detrimental at best, and disastrous at worst, that will clinch a bright future for their company and all stakeholders.