In the recent years we have been seeing the rise of Socially Responsible Investments (SRI) as opposed to traditional investments which focused primarily on investors profitable returns. Though ESG investing is used interchangeably with SRI, they have a key difference. ESG is used by socially responsible investors to screen any potential investments. (Which was covered in our previous blog on ‘why ESG has been gaining momentum' ). The report “From Stockholder to Stakeholder” published in 2015, shows how sustainability measures like ESG, impact the financial performance of any organization. Ideally the goal of implementing a good ESG framework is to have a positive impact on our society and is to be carried out by the good will of an organization. Let us look at how ESG creates value for our business!

1. Reduced operational costs

ESG can help organizations reduce costs on energy & resources by reducing and reusing them effectively. McKinsey research has found that by effectively implementing ESG, 60% of wastage is reduced. Companies like 3M have committed to reducing water use by 25% at its facilities by 2030 and return higher quality of water back to the environment post use in manufacturing operations and achieving carbon neutrality by 2050 to accelerate their new environmental goals. 3M has ongoing efforts in sustainability and ESG efforts and is credited to have saved 2.2 billion USD by its 3P program. On the contrary ‘Cost of Water Risks to Business Higher Than Cost of Taking Action’ cites CDP

2. Increased Revenue

Businesses that have implemented ESG have performed better than those which have not in the broader market. Companies with a good ESG rating can easily gain access to newer markets as the governing authorities are able to provide them access, approvals, and licenses for newer opportunities. Additionally, ESG also attracts customers who are more ‘eco-concerned’ about their purchases. The Global Sustainability Study 2021 survey conducted by Simon-Kucher & Partners in July 2021 shows 85 % of the customers are willing to pay more for sustainable products and services.

3. Eased regulatory interventions

Businesses with ESG practices develop a trusted brand reputation and earn operating freedom through easing regulatory pressures and are less likely to face penalties, rigorous laws, or restrictions. As businesses line up with the ESG approach, they are more likely to get government support. McKinsey report states at least one – third of corporate profits are at risk due to interventions from the state.

4. Retain Employees and boost their productivity

Companies with ESG practices help retain their employees by identifying what keeps them motivated and inspiring a sense of purpose in their work environment. Employees who are more involved with the organization and those who understand their work impact perform better, are better motivated and tend to stay longer; thus, improving overall productivity. Millennials and Gen Z generations are more concerned about Social and Environmental issues than their previous generations and are likely to choose jobs from companies that are more ESG complaint. It’s said by the year 2029, Millennials and Gen Z will make about 72% global work force and that can be a driving force for companies to adhere to good ESG work force strategies.

5. Better investment returns

With the growth of Socially responsible investments (SRI) investors are also including ESG aspects in their decision making along with tools like advanced analytics which help investors with deeper insights and generate investment recommendations based on data. ESG also helps investors negatively screen organizations which may not pay off in the longer term. Having strong ESG framework will help build brand image and reputation with any potential investor.