Managing Environmental, Social, and Governance (ESG) Considerations - Opportunities and Challenges
In recent years, Environmental, Social, and Governance considerations (ESG) have become an increasingly strong influence on businesses.
What does this mean for leaders?
Each business (and regulatory environment) is different… but here are some steps leaders can take as they navigate this part of running a business.
Learn the regulations
This is a good starting point because it’s important to be compliant with laws. Engage a specialist, consultant or advisory firm to clearly define your obligations. In many cases, you’ll find the laws and guidelines are still under development. Knowing your obligations provides a baseline on what you may need to invest in this area.
Invest in education and training
ESG should not be seen as “a management challenge”. Make your team aware of the obligations and opportunities so they can get involved. Many universities and online platforms offer ESG courses and certifications.
Establish benchmarks
Assess your organisation's current performance in environmental, social and governance areas. How do you compare to your industry peers? Define any financial and reputational risk and set measurable goals to close any gaps.
Integrate into business strategy
For some businesses, ESG activities focus on ensuring compliance. Others will make fundamental changes in their business, such as in product development, supply chain management, and investments to realise ESG goals. That requires planning and careful assessment of the risks in various scenarios.
Manage stakeholders
Customers, suppliers, the media, employees, shareholders and regulators may take an interest in a business' approach to ESG. Transparency, detailed reporting and regular engagement help allay ESG concerns and set reasonable expectations.
Innovation and technology
Antiquated business methods can compromise performance on ESG metrics and investment in sustainable technologies may reduce environmental impact and improve social outcomes. A common source of opportunity is the Supply Chain, where collaboration with suppliers can result in sustainable practices.
Make ESG part of long-term success
Ask how ESG initiatives can contribute to organisational success and resilience in the long term. The answer will vary by business and industry but there may be immediate and long-term benefits from diversifying the workforce, investing in ESG-focused funds or assets, setting ambitious sustainability targets, and consulting ESG guidelines when choosing partners and customers. For some businesses, a highly evolved ESG strategy will be a source of competitive advantage.
How does ESG strategy fit into your long-term plans? Need help assessing and managing your business risk? Contact Alliott NZ's business advisors in Auckland for assistance.
