Author: Cygnetise – cygnetise.com
What is ESG?
ESG represents a 3-factor criteria framework for measuring the sustainability and societal impact of businesses. Below is a brief overview of each of the 3 ESG elements.
Environmental – the Environmental criteria covers corporate measures and policies aiming to improve a business’s overall environmental sustainability and impact on energy and raw material waste, carbon emissions and climate change.
Social – the Social factor of the ESG criteria framework focuses on the level of social responsibility of businesses and its commitment human rights, diversity and inclusion, work safety, community relations, consumer protection and personal data protection.
Governance – Governance includes all internal policies, controls and measures taken to ensure the legal and compliant operations of an organisation such as statutory reporting, auditing, AML, risk management, etc.
Why ESG matters
Once seen as a main marketing and PR tactic, ESG has now started to take a central role in corporate strategy and policy agendas pushed by the ever-increasing pressure for its integration from investors, governments, and the general public.
In this year’s annual letter to CEOs, Blackrock’s CEO Larry Fink has again emphasized the importance of ESG for achieving long-term profitability and corporate sustainability.
“The importance of serving stakeholders and embracing purpose is becoming increasingly central to the way that companies understand their role in society. As I have written in past letters, a company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders. A pharmaceutical company that hikes prices ruthlessly, a mining company that shortchanges safety, a bank that fails to respect its clients – these companies may maximize returns in the short term. But, as we have seen again and again, these actions that damage society will catch up with a company and destroy shareholder value. By contrast, a strong sense of purpose and a commitment to stakeholders helps a company connect more deeply to its customers and adjust to the changing demands of society. Ultimately, purpose is the engine of long-term profitability.” Larry Fink, Chairman and CEO at Blackrock
With global sustainable investing surging to record highs of $45.7bn in 2019, ESG is proving to mean much more than just a feel-good exercise. According to McKinsey’s latest research and analysis, ESG can benefit an organisation’s bottom line in 5 key ways:
- Facilitating top-line growth – a strong ESG proposition and integration can help attract new business opportunities, meet competitive challenges and speed up growth by strengthening relationships with key stakeholders, consumers and government bodies. A consumer research by McKinsey has revealed that up to 70% of consumers surveyed across multiple industries are willing to pay an extra 5% for a green product if it met the same performance standards as a non-green alternative.
- Reducing costs – tackling environmental issues like climate change, energy and raw material waste can have a direct impact on operating profits by as much as 60%. In a recent corporate research, McKinsey has discovered that there is a particularly strong correlation between resource efficiency and financial performance. A perfect example of this is the UK tech giant 3M that has “long understood that being proactive about environmental risk can be a source of competitive advantage”. Since launching its “pollution prevention pays” (3Ps) programme, back in 1975, aimed at redesigning products, improving manufacturing, recycling and reducing waste, 3M has saved over $2.2bn.
- Minimising regulatory and legal interventions by increasing transparency – an effective ESG integration can improve transparency and thus reduce the general regulatory burden on organisations. Whilst the biggest benefit of ESG from a regulatory perspective is reducing the risk of adverse government actions, it can oppositely attract its support. In some industries like banking, automobile and pharmaceuticals, organisations might risk up to 60% of the value.
- Increasing employee productivity – generally, a strong ESG proposition can attract and retain the best talent and drive work motivation by instilling a sense of purpose that can further improve productivity and employee satisfaction.
- Optimising investment and capital expenditure – by allocating capital on more sustainable investments, organisations can also benefit from higher investment returns in the long term. For example, relying on energy-hungry plants and equipment can significantly affect cash flows in the future as governments continue to push for a greener economy.
ESG best practices
As we learned from the previous section and McKinsey’s own research and findings, ESG can certainly bring a lot of value to your organisation. But, how can you actually realise this value? Where should you start from?
Below is a 4-step best practice guide for implementing and integrating an effective ESG framework within your organisation.
Step 1: Assess
The first step in the process is to assess your organisation’s current level of socio-economic impact including current emissions, carbon risks, social procedures and performance, and decide on appropriate ESG criteria for your sector and type of organisation. To develop an effective ESG policy agenda, you should focus on the factors that are most relevant to your individual business goals and strategies – avoid trying to be all things to all people.
For example, if you’re an oil and gas company, you should mostly focus on measuring water and waste management and natural material waste reduction. In contrast, if your business model is service-centred, then you better focus your ESG efforts on social training, diversity and inclusion.
One way to make sure your ESG agenda is relevant to your organisation is to research and benchmark industry rankings within a major sustainability ranking index. There are a number of non-profit global advocacy organizations that identify and rank corporate ESG programs:
Step 2: Develop & commit
Once you’ve identified the most relevant ESG criteria for your organisation, you can develop your policy framework by assigning responsibilities, mandate, resources and measures (e.g. create a green and digital transformation programme with your Sales, R&D and product departments, with a direct line to the C-suite and board). Activate your programme and commit to publicly disclosing your organisation’s ESG achievements.
Step 3: Activate
Make sure your ESG agenda is effectively integrated across your entire organisation by educating relevant stakeholders and empowering them to drive its implementation in their daily work and life.
As part of your ESG activation, you might also consider joining one or several public initiatives such as Exponential Roadmap Initiative, B Corp Collective or the Chambers Climate Coalition.
Step 4: Track & report
An important step of your ESG programme and commitment is to disclose your progress, goals and achievements as part of your public reporting (incl. CEO letter, annual reports, internal corporate communications, and/or annual sustainability reports). This will help you establish your organisation as a devoted and serious ESG leader. It can also help you strengthen your brand and market positions.
How Cygnetise can help you achieve your goals towards environmental and sustainable growth
Cygnetise provides a digital solution to the paper-based management and distribution of Authorised Signature Lists.
You may recognise the phrase “the paperless office.” This was used liberally in the late 80’s and 90’s as significant advances in technology facilitated explosive growth across industry and commerce. Whilst inroads have been made, the reality of a paperless office remains unfulfilled – This at a time when the focus on our environment has never been greater or more important. We’ve discussed this in more detail in our blog “The death of paper: Are we heading into a paperless business world?”.
Currently, millions of organisations are still maintaining their ASL’s on paper which involves paper production, procurement, transport and storage. The process requires regular updating, often several times every year which means repeated paper production and consumption. And it doesn’t stop there, once updated, ASLs need to be re-distributed, in many cases, this is done physically over mail which generates further waste and costs.
Cygnetise digitises the whole process and makes it more sustainable, secure and cost-efficient. In addition to enabling you to minimise your reliance on paper and reduce your total carbon footprint, Cygnetise can help you adhere to good governance frameworks and strengthen compliance. Good governance is increasingly under the spotlight. Organisations that actively take steps to promote stringent and robust governance measures can only enhance their profile in the business world. It may be only one component but by replacing a cumbersome, risk-riven, paper- based procedure and adopting the secure, digital and flexible Cygnetise solution for Authorised Signatures, organisations will be able to demonstrate their journey to enhanced governance protocols.
The drive for Organisations to be Environmentally proactive, Socially aware with enhanced Governance principles, is gathering pace and Cygnetise are proud to be an enabler of the process.
To learn more about Cygnetise’s application and request a free demo, please email our team at [email protected].