What is ESG, Really? How ESG Business Strategy Benefits Stakeholders

Sustainability and environmental, social and governance (ESG) reporting has become a hot topic recently, although many people admit that they don’t understand it. In fact, Forbes reported in 2023 that 78% of Americans were not clear on what ESG actually means. Despite this, some opponents suggest that pursuing sustainability initiatives puts unnecessary financial burdens on businesses.

Let’s start by defining ESG: ESG is a holistic approach to business strategy that considers the material environmental, social and governance risks to the business, while identifying long-term growth opportunities that benefit the bottom line and stakeholders.

Yes, that’s a long definition—and that’s because ESG is a complex topic that looks different for every company and in every industry. Incorporating ESG into your business strategy can be a large undertaking, and it requires a lot of planning and investment of resources. But seeing your business through this lens will help you refine your long-term vision and transform how you make decisions.

When you’re embarking on your ESG journey, you need to get employees at every level on board. It’s crucial to take the time to provide education, so they understand how the transparency that ESG reporting offers is a benefit to them and other stakeholder groups.

As you think about how best to share ESG with employees, consider these 5 ways your organization and your stakeholders benefit when you incorporate sustainability into your ESG business strategy.

1. Reduced risks and better transparency

At the early stages of developing an ESG business strategy, companies typically conduct materiality assessments to help them identify the company’s most significant impacts related to ESG topics. Some examples include greenhouse gas emissions, employee training, procurement practices and human rights. Showing that you’re taking steps to identify, assess and address ESG impacts can help reassure different stakeholder groups that the company is taking ESG-related risks and opportunities into account in the overall business strategy. It helps investors and ratings agencies see the company has a comprehensive business strategy and shows customers how you can fit into their supply chain and their own sustainability goals.

2. New potential revenue streams

Having conversations about your organization’s impacts may lead to creative solutions. This will look different depending on your company. For example, some businesses are finding material in their waste streams that can be sold or repurposed for new markets, boosting their profits. Other businesses may discover innovative products or processes that will specifically appeal to customers seeking sustainable solutions.

3.  Stronger employer proposition and retention rates

Gen Zs and millennials place a high value on sustainability—when buying products, when investing, and when applying to jobs. Research shows that a majority of young workers consider a company’s environmental impact and ESG policies before accepting a job offer, and one in six have changed jobs due to climate concerns. Companies that publicly commit to ESG will have a stronger employer value proposition that attracts young talent and makes them want to stay (which saves money, too).

4.  More efficiency, less environmental impact

Another positive benefit when you seek to reduce your company’s environmental impacts is that investing in more efficient systems can provide long-term cost reductions. For example, reducing emissions may lead to lower energy usage and expenses. Reducing waste means less waste removal, and reducing water use means a lower water bill.

5.  Attract and retain customers

Regulations around climate and ESG reporting are taking shape around the world right now. For B2B companies, your sustainability efforts will become more and more important to customers who must manage their own sustainability commitments. Even private companies may be asked to provide emissions data as part of their customers’ scope 3 reporting requirements. Large corporations like GM and Unilever are already asking their suppliers to commit to achieving carbon neutrality by a specific deadline—and they will likely make that a mandatory requirement one day. The sooner you begin your journey with your ESG business strategy, the more likely you are to keep existing customers, and even attract new ones, who are seeking sustainable alternatives.

The transparency and innovation that comes from having a strong ESG business strategy in place can inspire more confidence in your company’s longevity and help people understand how you’re planning for the needs and challenges of the future. But the strategy isn’t where the work stops. You need to effectively communicate to your stakeholders how—and why—you are making ESG a priority.

Contact our ESG experts at inquiries@standingpartnership.com to get started.