Benefits of an ESG strategy
In the latest edition of the SMTA magazine Scots AUTOSCENE, we cover the benefits of an Environmental, Social and Governance (ESG) strategy for your business.
Issues surrounding environment, society and governance (ESG) are rarely out of the headlines these days due to their growing importance on political and societal agendas. As engagement amongst the wider public increases, what can businesses do to show they are playing their part in being a responsible organisation?
ESG is a collective term for measuring a business’s impact on social and environmental issues and its governance beyond simply generating revenue or making a profit.
In this article, we discuss how to assess your business’s environmental footprint, social impact and governance principles, and explain why running a forward-thinking business is so important.
How sustainable is your business?
The three pillars of ESG are:
- Environmental — how does your business minimise its impact on the environment?
- Social — how does your business affect your employees and society as a whole?
- Governance — how good are your business’s governance and risk management strategies?
These three factors can tell you, your customers and potential investors how prepared your business is for the future.
Environment
Collecting data on primary operations and keeping track of factors including energy consumption and waste will help measure how green your business is. Tracking the data over time, and even benchmarking against similar businesses, will make it easier to identify where improvements might be made. Take care not to “greenwash” your practices. Be transparent with any challenges you face in adopting more sustainable products or services.
Social
When looking at a business’s societal impact we can examine how it interacts with the workforce, customers, suppliers and associated communities. For employers, low staff turnover rates, equal pay policies and high morale are often good indicators of a positive workplace culture, along with diversity and inclusion policies. Keeping customers’ sensitive data secure and establishing that their products and services are safe is important. How the company supports the local communities with fundraising, volunteering and offering work placements can also be measured.
Governance
Good governance is about integrity, openness and risk management. To measure this, you should consider your decision-making process and how you promote fairness, transparency and accountability in your business. As a business owner, your finances will inform key decisions. Ensuring your accounting methods are up to scratch will help you produce accurate budgets and forecasts, keep you compliant and help you manage risks in your business.
Why is ESG important?
Improve your brand image
Consumers are increasingly concerned about their social and environmental impact. Demonstrating your commitment to sustainable and ethical business practices can improve your brand image and attract more customers.
Save money
Making your business environmentally friendly can save money. Limiting energy and water usage means lower utility bills, while going paperless can reduce paper and printing costs.
Secure funding
According to the Confederation of British Industry, around two-thirds of investors now take ESG standards into account when considering investment opportunities. Thinking about your business’s impact and your governance principles can reassure investors that their money is in safe hands, helping you secure the funding you need.
Stay compliant
Governments often introduce new legislation to help protect the environment and tackle climate change. While only large businesses need to report on their environmental impact in the UK, this could change in the future. If you trade outside of the UK or have plans to, you’ll need to ensure you comply with international laws.
How to put ESG at the heart of your business
Digitalise your business
Digital systems can allow you to organise your information more clearly and back up your data. Cloud accounting technology could also make it easier to understand your finances and collaborate with your accountant. Access to real-time data can help ensure you’re always working on the most up-to-date financial information, allowing you to forecast accurately and keep shareholders in the loop.
Listen to feedback from stakeholders
Asking for feedback from customers, employees and stakeholders can also help you future-proof your business. Regular check-ins can help you maintain transparency and open communication with your stakeholders.
Work with experts
Experts from outside your organisation can give you valuable insight into how to prepare your business for the future. Your accountant can use your financial data to identify potential risks to your business and offer solutions for you to address them.
Our Thomson Cooper ESG Group
Part of our own ESG strategy is to work on initiatives which help raise awareness of environmental issues and how we all play a part in the move to net zero. Having completed the task of calculating our current carbon footprint, our ESG group have defined activities aimed at reducing our carbon emissions. Some of the actions so far have included:
- Using free services like Business Energy Scotland to carry out a review of our office energy efficiency and agreeing steps we can take to reduce our power consumption increasing
- Closer monitoring of paper usage and printing, sharing the stats with employees and challenging them to reduce usage
- Considering staff commuting and supporting greener travel, for example car sharing and allowing flexibility around start and finish times to align with public transport timings
- Recycling technology by donating computers to local community groups
- Using the free battery recycling service offered by Valpak for small batteries
Developing your ESG strategy
ESG should be a strategic objective of the business. This starts with creating an ESG strategy which is fully supported by the business owners and senior management. ESG is not just about the E – it also needs to look at the S and G too. In creating an ESG strategy, most business reference the United Nations sustainability goals and align those with their business, choosing one from each pillar to then devise action to support the goal.