Positioning and ESG: How to make a difference.

Strengthening trust and maintaining reputation.

The growing importance of ESG can no longer be denied; it has today become a crucial factor in the decision-making of companies and organizations large and small. It is no longer an option for a company or organization not to embrace ESG principles. A company or organization is expected to act not only financially-economically, but also environmentally and socially responsible and to communicate transparently about this. Years ago, people still spoke of the 3Ps or Triple Bottom Line “People, Planet, Profit. But in practice this was often limited to just environmental measures. Nowadays, the term sustainability is mainly used alongside ESG, which stands for “Environmental, Social & Governance. Environmental includes everything to do with climate and environment, but also the (natural and urban) environment. Social stands for the social impact (society but also individual people as citizens and consumers) and Governance looks at how governance, policy and strategy are implemented responsibly. Its impact involves stakeholders, employees, the market and the economy at large.

ESG creates a comprehensive set of values and standards (The United Nations has 17 sustainability goals) for the behavior of a company or organization, in which environmental impact is primary, especially in industry and agriculture, while for nonprofit organizations, transparency of governance and policies receives the most attention. A sustainability aspect that is becoming increasingly important for almost all companies and organizations is the creation of a safe and inclusive, equality-oriented workplace regardless of the employee’s job title or position. Company executives, managers and directors should be aware that performance and profit alone, without attention to the company’s impact on the non-financial aspects mentioned above, are no longer enough for most shareholders, banks and investors and the broader society. The incorporation of ESG into the goings-on of the company is a prerequisite above profit (maximization) and market share for many stakeholders. As a result, ESG performance has become an essential component of value creation and shareholder value.

A journey rather than a destination

With ESG becoming an integral part of business operations, it is vital for any company to strike the right balance between financial returns – which have been the focus for decades – and sustainability requirements and expectations.
No two companies or organizations will follow the same ESG path, as a sustainability strategy must fit the type of business or nature of the organization and its short- and long-term opportunities.The latter are often determined by local conditions but national politics also play a determining role without exception.Some companies will be able to make only modest adjustments in their operations and those of the chain they belong to in order to become more sustainable. Other organizations will be able to make the transition to sustainable practices more easily, depending on the technology used and/or the type of services or products they produce. Still others – especially companies in ICT, manufacturing, agriculture, distribution and logistics, construction and real estate – will discover that certain adjustments to their core portfolio or a rethinking of their strategy will enable them, often without reducing profitability, to become part of the new, more sustainable society. They may even become drivers of this.

But regardless of the need and impact of ESG on business or organization internally and externally, of immediate importance is to realize that the sustainable development the organization is going through will not be noticed if it is not also reported on. As mentioned, ESG has a direct impact on value creation and risk management. Often it is not financial, but other parameters by which results are measured and evaluated. Transparent communication and honest reporting will increase confidence in the new direction and contribute to the reputation of the company or organization. Sustainability efforts are undoubtedly appreciated, even if this means that financial results are -temporarily- reduced. Sustainability is also a matter of cost before benefit. Sustainability is a learning process and undeniably not always predictable. It is therefore usual to start “small” (picking the low-hanging fruit) before implementing more far-reaching measures. Experimentation and innovation are inseparable from the ESG journey.

ESG is attractive to customers, lenders and investors

Attracting customers, credit and investment is increasingly dependent on an organization’s ESG performance.It has become a leading criterion in the decision-making process of almost all stakeholders.

ESG-driven organizations have a constant need for new capital to finance future growth and remain competitive within their markets.In principle, this is possible, as ESG continues to gain traction with lenders, investors, venture capitalists and other shareholders as a standard due-diligence screening tool for potential investments.

The U.S. financial media company Bloomberg recently stated in a study that on average 60% of investment institutions in the EU have performance and verified data on their radar as prerequisite metrics when making investment decisions.

A clear ESG policy consistently reported is an important reference point for decisions of investors, investors, banks and other stakeholders with a clear stake in the company or organization. This includes suppliers, customers and clients and, of course, employees.

Without ESG policies, companies and organizations risk losing access to capital and the top talent needed for expansion or growth.By linking ESG reporting to tangible business goals and objectives, all stakeholders gain the necessary insight into how ESG and positive financial and non-financial outcomes can reinforce each other.Clear ESG reporting makes an organization’s efforts tangible, which can only strengthen its connection with shareholders, employees and customers.

ESG attracts and retains talent

By now it will be clear that paying attention to sustainability is an ongoing task, not a one-time event.Both banks and investors, but also other stakeholders and not least the employees of a company want to know what the organization is doing to contribute to a better world.To cite just one example, almost 90% of millennials indicate that they would be willing to work for another company at a lower salary if it better aligned with their values and ideas about a world in which everyone can basically live “happily.Incidentally, that includes demanding working conditions that take into account a personal life in addition to work and in which they are also heard and can have a say.

Many employees are looking for more than just a well-paying job. They want to enjoy their work, feel appreciated, and have a positive impact on company results. Working for a company with a good reputation for sustainability and ambitions to be a benchmark in this as well is often a deciding factor in attracting new employees and the satisfaction of current employees. Millennials and Gen Z workers are expected to make up nearly three-quarters of the workforce by the end of this decade. These generations rightly place greater emphasis on climate and environmental issues alongside greater attention to equity in the social and economic spheres. From their employers, they expect similar attention and commitment. They care that the companies they work for are open to their values and views and, where necessary, adapt the company’s old values to the new reality.ESG has thus become essential to a company’s employer branding.

ESG makes brand DNA better understood

One side effect of adopting ESG that cannot be ignored is that it forces a company or organization to re-examine themselves both structurally and culturally and adjust their DNA where necessary. The critical issues raised by ESG often lead to existential questions about the future of the organization and its operations: how does ESG fit into “who we are and what we stand for?” Do our strategy and goals still align with our mission, vision and core values, or is a change in one or the other necessary?And if so, how do we credibly communicate this to our stakeholders and customers?Practice shows that having an ESG policy often leads to a brand with a more robust value system and a more authentic culture, as well as a more profound proposition and more appealing promise.The big trick is to also live up to this permanently and not damage the desired reputation and image.

Building a stronger, more resilient brand

A company’s values and how it communicates them are the essence of its brand. But because a brand exists only in the minds of stakeholders, an organization is not an owner of it but only a custodian. Therefore, a brand is a constant dialogue along open and direct communication channels. Incorporating ESG helps a brand future-proof its mission, vision, and core values.ESG creates a new horizon, offers greater transparency and, if communicated with integrity and seriousness, ESG also strengthens the brand’s authenticity. In other words, ESG offers intrinsic added value in the maintenance and further development of a brand. In fact, ESG is not a question of “whether we do it or not,” but a fait accompli for the survival of organizations and companies.

On behalf of TD Cascade, Olga IJspeert & Gert Noppen