Marc Bradbrook, Commercial & Energy Services Director, Haven Power
Right now, businesses are under more scrutiny than ever. Processes, suppliers, materials, and policies often have more of an impact on consumer actions than a finished product, and that’s not a bad thing.
In previous years, Corporate Social Responsibility (CSR) was a motto for sustainable business practices. But as we approach the government’s targets for net zero by 2050, CSR is no longer enough.
As an outdated term, CSR risks being a marketing tool, allowing businesses to make symbolic gestures while, in the worst cases, enabling corporate inaction.
Thankfully, a new movement is starting to dominate the corporate landscape.
ESG stands for Environmental, Social and Governance – three categories that enable businesses to measure the real sustainable and societal impact of their outputs. These target areas need to see genuine, persistent improvement for us to experience real change in the world around us.
While it sounds similar in principle, the difference is that ESG is measured, quantifiable and criteria-led, allowing businesses to fully integrate better environmental, social and governance strategies into their DNA. In fact, 93% of the world’s largest companies by revenue report on ESG, disclosing things like how many gallons of water they’ve conserved or how much plastic they’ve recycled. And where the market leaders go, others will surely follow.
Take Gatwick Airport, for example. The aviation industry is heavily scrutinised, and for such an organisation it’s difficult to make real and sustained improvements. However, in its 2019 sustainability report, Gatwick showed just how hard it’s been working to make a difference. The report showcased that none of their waste was sent untreated to landfill, 71% of waste was recycled, and that 62% of flights were by the quietest aircraft to reduce noise pollution. Plus, they did all of this whilst retaining Level 3+ ‘neutral’ Airport Carbon Accreditation, meaning the airport achieved net zero emissions over the previous year.
The relationship between ESG and profit
In recent years, our markets have transformed to reflect this conscious shift from businesses, as having a good ESG strategy is associated with good financial performance. So, how does ESG impact profitability?
In principle, investing in ESG as a business isn’t about making money. The purpose of ESG is to consider how ethical your practices really are, putting sustainability and moral principles above profit. But, in some cases, it can incite conscious investors to support your organisation.
Up and coming investors choose to back socially responsible organisations reflecting societal changes. Not only are they investing in a better future, but they’re seeing a positive return on investment as a result. It really is a win-win for both the organisation and the investor.
Similarly, consumers are also now voting with their money, with three in four millennials willing to pay more for sustainable products. We’re looking, more than ever, to spend our money with businesses who share our values.
This year, as the Covid-19 pandemic began to bite and to dominate the news agenda, many people feared that ESG would take a backseat as businesses around the world fought to stay afloat. Despite great tragedy, we have learned important lessons. Not only have we seen the positive impact that reduced travel and industrial activity has had on our environment, but the pandemic has also taught us to check in on the people around us, to care for our communities and to put a greater focus on employee wellbeing.
The fabric of the consumer market is changing in line with a more conscious and courageous society. ESG is not only about showing that ethical principles lie at the heart of your business but using your power and platform to make constructive change.
Many businesses have stayed strong with their existing ESG targets. Businesses like Microsoft and Drax Group haven’t waivered from carbon negative commitments, while others, such as Brewdog, made waves in lockdown by announcing that they’re already achieving carbon negativity. In fact, recent research showed that 70% of business leaders believe the pandemic has made them more environmentally conscious.
As a sustainability professional or a board member, it’s your responsibility to ensure that your corporation does its best to address the criteria laid out by ESG. Sustainable change is best made through investment, even when it may seem challenging. You must strive to put what matters first, and to contribute to a future where health, safety, sustainability, and ethics are a priority.