This blog looks into the meaning of Environmental, Social and Governance (ESG) and the reasons why senior management are investigating the part that Quality, Health, Safety & Environmental (QHSE) can play in its implementation, co-ordination and management of its core principles.
For most businesses, securing investment when you need it can be a crucial factor in maintaining growth and improving operations, not to mention boosting your overall profitability.
The concept of ESG analysis has evolved over the years and it is not just a case of evaluating the products and services but also its behaviour, conduct, supply chain and other influencing factors. The investment bodies are analysing companies’ ESG performance in increasing detail, particularly in relation to their long-term sustainability as key indicators of future success.
There is also pressure being applied by employees, customers and other stakeholders whose stance on climate change and social justice has become more explicit. This is now resulting in the expectation of more transparency regarding operational strategies and financial reporting.
Before understanding the broader implications of ESG, it is important to get a handle on the basics – one of which is a true understanding of sustainability.
The term is mostly used in relation to the environment and the preservation of natural resources. That means running your business and your supply chain in a way that acquires and uses raw materials in a responsible way so the production of harmful emissions and other waste products is minimised or eliminated.
Sustainability is actually a much wider subject than this and it is usually categorised by three pillars –environmental, social and economic (also known as the three P’s – planet, people and profit).
Being sustainable is about taking as little as possible – whether that’s from the natural world, or the society and community in which you operate – and giving back at least enough to support the status quo, if not more. It’s about meeting the needs of today without impacting the ability of future generations to meet the needs of tomorrow.
Measurability is the fundamental difference between the loose term ‘sustainability’ and your environmental, social and governance performance. ESG is the data that shows us how sustainable any given business is.
ESG is supported by metrics and data that businesses collect and use by lenders and investors to rate companies when doing their due diligence. While there’s no strict regulation yet, the European Commission has developed a template for ‘Green Lenders’ to identify companies they will prioritise due to their ESG performance so improvements in this area will only grow in importance.
The link between good ESG and successful business is strengthening all the time. Research from Harvard Business School has shown that the stock market performance of organisations with more sustainability policies is 4.8 per cent better than those without. In a similar vein, Blackrock, one of the world’s largest management companies issued a global survey in 2020, which revealed 54% of respondents considered sustainable investing to be fundamental to investment processes and outcomes.
Aside from improving your attractiveness to new investors, there are other benefits – both long and short-term – to establishing and maintaining your ESG rating.
The two main ones are important to any business, in any sector – namely an improved bottom line and the ability to attract and retain talented people.
Companies that support sustainable practices tend to attract better-qualified employees, and upholding a relatable and attractive set of values will mean your people will perform better and take greater pride in their work, and in the organisation, they’re a part of.
Environmentally friendly processes and practices also bring about lasting benefits for businesses in terms of profits and expenditure, as less wasted energy and time quickly translates to substantial financial savings that will continue to repay any initial outlays in the long term.
Some material changes in the way businesses are run can contribute to an improved ESG rating – however, to achieve real and lasting impact the key is – and always will be – driving behaviour change among your employees. The Management System stores your current QHSE processes and work instructions to provide a ready-made repository of measurable work practises, as selected by the company for ESG performance measurement.
Delivering measurable `best practise` through your processes instructs users on topics such as use of sustainable materials, reducing the production of CO2, supporting the social issues of gender diversity, workers’ rights or reducing poverty and any other area of interest.
While process output is essential for ESG assessment, identifying where further incremental improvements can be made to increase performance is of continual benefit to your business.
Many of the most important factors in improving your business’s ESG performance centre around improving your processes.
Whether it’s identifying your ESG risks and opportunities and integrating them into your day-to-day operations, understanding how your procedures relate back to ESG, or aligning to regulatory and compliance frameworks – your processes are the single biggest stepping stone to achieving all of this.
As the Agility System software acts as a central repository for both documents and processes for many medium-sized and global businesses, the fundamental elements of ESG are provided in a transparent framework to manage the environment and governance of human factors.
While currently unregulated, ESG is predicted to become the key requirement for companies across the world where non-financial factors form part of the analysis to identify material risks and growth opportunities.
The Agility System helps you manage your people, processes and ESG landscape to bring about real change in your business that will improve company growth.
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