The rise of ESG: Game changer for business or temporary trend?

The rise of ESG: Game changer for business or temporary trend?

Steve Santamaria, CEO, Folio Photonics, says the significance of ESG’s rise lies in the fact that it is a truly transformative, intentional approach – not just a temporary trend.

ESG is an acronym that represents Environmental, Social and Governance – it serves as a framework for assessing a company’s ethical and sustainability practices.

The significance of ESG’s rise lies in the fact that it is truly a transformative, intentional approach – not just a temporary trend.

Companies that abide by ESG principles have become more appealing to customers due to the customers’ values and beliefs.

Customers are increasingly conscious of how their purchases impact the environment and society and prefer to do business with companies that share their values.

For instance, customers now favor companies that have committed to reducing their carbon footprint, foster diverse and inclusive workplaces or follow equitable labor practices.

Customers feel that they are contributing to a better world by doing business with companies that prioritize ESG.

In addition, ESG factors are increasingly crucial to customers while assessing companies and making purchasing decisions.

Companies that prioritize ESG are better equipped to manage risks and adapt to changing market conditions, making ESG performance an indicator of a company’s long-term sustainability and financial performance.

A survey by Accenture shows 62% of consumers worldwide expect companies to take a stand on important issues such as sustainability, transparency and fair employment practices.

Increasing customer interest in ESG principles emphasizes that ESG initiatives should be intentional and grounded in reality rather than used solely as a marketing tactic.

Employees are increasingly drawn to companies that prioritize ESG principles for a multitude of reasons.

Steve Santamaria, CEO, Folio Photonics

To start, today’s workforce, particularly Millennials and Gen Z, place a high value on purpose and social responsibility in their work.

Employees seek out companies that align with their personal values and contribute to positive change in society and the environment. By working for a company that adheres to ESG principles, employees feel a sense of meaning and fulfillment in their work.

Companies that prioritize ESG principles are perceived as more ethical and transparent. Employees prefer to work for organizations that act with integrity and are open about their business practices. ESG reporting and transparency help establish trust with employees, customers, investors and other stakeholders.

And, companies that prioritize ESG principles are seen as more innovative and forward-thinking. These companies are early adopters of sustainable technologies and practices – they are often considered industry leaders.

Employees desire to work for companies that stay ahead of their industry and create positive change.

Finally, companies that prioritize ESG principles enjoy better brand recognition and reputations, resulting in increased customer loyalty, which can lead to greater job security for employees.

These companies tend to be financially stable and better able to weather economic downturns.

According to a Glassdoor survey, 64% of job seekers consider a company’s social and environmental commitments when deciding where to work.

There are various ways in which ESG practices assist companies with regulatory compliance, mitigating risks and reducing costs.

  1. Regulatory Obligations: ESG initiatives assist companies in fulfillling regulatory obligations and minimizing financial risks. By implementing environmentally sustainable practices, businesses can adhere to regulations related to emissions, waste disposal and water usage. Likewise, by prioritizing social responsibility, organizations can meet labor laws, fair trade regulations and human rights policies. Failure to comply with these regulations results in costly penalties and damage to a company’s reputation.

  2. Risk Reduction: By implementing ESG practices, companies mitigate risks associated with environmental, social and governance factors. For instance, companies that prioritize environmental sustainability can minimize the risk of harm to their reputation or legal liability arising from pollution or waste. Likewise, companies that emphasize social responsibility can reduce the risk of negative publicity, employee dissatisfaction or customer outrage stemming from labor practices or human rights concerns.

  3. Cost Savings: Embracing ESG principles not only helps companies align with their values and purpose but also leads to significant cost savings. Companies that invest in sustainable practices, such as energy efficiency or waste reduction, can often see a substantial reduction in operational costs. In addition, companies that prioritize social responsibility can boost employee engagement and satisfaction, which reduces turnover and lower the associated costs of recruitment and training. These cost savings not only benefit the bottom line but also help companies establish a positive reputation as socially responsible and financially savvy.

To strengthen a company’s ESG position, it is crucial to implement these practices not only internally but also throughout the entire supply chain.

In recent years, there has been a notable surge in the incorporation of ESG criteria in investment decision-making processes. The following explains why:

  • Aligns with values and beliefs – Growing numbers of investors are aligning their investments with their values and beliefs and ESG investing has emerged as a popular avenue to achieve this goal.
  • Minimizes risk – Investment firms are increasingly adopting ESG criteria as a risk management tool to identify and mitigate risks related to climate change, environmental impact, social issues and corporate governance.
  • Bolsters resilience – Investment firms are now more convinced than ever about the significance of long-term sustainability in their investments. Companies that prioritize ESG factors not only demonstrate their commitment to environmental and social responsibility but also tend to have a more resilient business model that can adapt to changes in the market, regulations and societal expectations.
  • Positions for growth and long-term success – Companies that excel in ESG criteria not only demonstrate their commitment to sustainability, but also open themselves up to a world of opportunities for growth in emerging markets and industries such as renewable energy, sustainable agriculture and green technologies.

The numbers speak for themselves. In 2021, global sustainable funds attracted a staggering US$1.7 trillion in inflows according to a report by Morningstar.

The Global Sustainable Investment Alliance (GSIA) estimated that sustainable investing assets reached a massive US$35.3 trillion worldwide in 2020, marking a significant 15% increase from 2018.

These impressive figures prove that sustainable investing is no longer a niche trend but a mainstream movement.

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