Focus on purposeful goals that drive value.
Summary (this article is focused on ESG and can be extrapolated towards many business and technology projects and programs)
- Why is ESG critical to your ongoing success
- How to develop an ESG strategy
Why is ESG critical to your ongoing success
As companies look to the future, the demands for sustainability and environmental, social and governance (ESG) are increasing. Black Rock CEO noted over the last two years “…we have seen a tectonic shift of capital. Sustainable investments have now reached $4 trillion”. In alignment with this, the SEC has a climate-related disclosure proposal and Europe has already instituted a number of laws and regulation. Whether it’s a need to access investment dollars or an increased focus on progressing a sustainable and ethical approach, you need a business strategy that includes ESG and sustainability.
ESG demands are rapidly increasing, whether the call is from your customers, employees, the board, executives, community, investors or indeed government / SEC mandates, firms must have a clear ESG strategy and plan in place. Helping our clients develop a clear plan that is both practical and economically viable is where Glen Oak Consulting thrives.
In this article, we show how an ROI-based ESG strategy can help assure a successful outcome through the planning process to incorporate sustainability into your organization. Company leaders have to make difficult decisions as to where to invest. The expectation is, organizations continue to maintain revenue, while making positive impacts (or reduces the negatives) on the environment and society and, demonstrate how, by communicating strong governance in both internal and public reporting. Companies with a strong, public ESG commitment:
• Cultivate positive brand recognition increasing loyalty and attractiveness to investors
• Save or make money from operating efficiencies that are ESG focused
• Attract top-tier employees by aligning with personal values and purpose
• Enhance the firms reputation to local/global community, customers and employees
• Attracts investment dollars from ESG investors – as above BlackRock has reported “a tectonic shift of capital”, with sustainable investments reaching $4 trillion
In addition to the benefits an ESG approach provides, much legislation is already in place and the SEC has released a climate-related disclosures proposal that has significant implications on how firms will report emissions going forward.
These elements are among the keys to achieving increased profitability and long-term financial success from ESG. As shown in a recent study by Ernst & Young, ESG is positively correlated with better risk management, improved corporate reputation, and increased innovation. That study has shown that companies with strong ESG performance achieved an average return on investment of 10.4% compared to 7.4% for those with weak ESG performance. Additionally, McKinsey & Company found that ESG-focused companies have lower volatility and higher risk-adjusted returns compared to their peers, making them more attractive investments. This is underpinned by numerous progressive organizations that are reaping the benefits of sustainable ESG solutions, examples include:
Microsoft | Accenture | Costco |
MS reduced carbon footprint, increased energy efficiency, and decreased waste generation, with the company reporting a $10 billion increase in sales due to its ESG initiatives. | Accenture has reported a 20% increase in employee engagement, a 17% increase in customer satisfaction, and a 20% increase in shareholder value due to ESG initiatives. | Consequently of their ESG efforts, Costco has seen a 20% increase in customer satisfaction, a 15% increase in employee engagement, and a 10% increase in shareholder value. |
How to develop an ESG strategy
So, lot’s of areas that can positively influence the environment, society and make your firm one that customers are attracted to, over your less progressive competitors.
Based on a career of 25+ years of developing practical and effective strategies, Glen Oak Consulting can help your organization:
• Develop a practical strategy that is prioritized to your specific goals
• Create and integrate the roadmap into your ways of working
• Educate and train your staff by working together, allowing you to refresh on a periodic basis without having to “get the consultants back in”
• Structure the program and help source partner firms to deliver
By developing an ROI-based ESG strategy, you can assure a successful outcome through the planning and budgeting process by showing a prioritized and sequenced set of projects and justifying their value to the business as well as society. Since the project set is prioritized and sequenced, it is simpler to identify those that will return value in the short term, while setting aside resource and funding for longer term projects and initiatives that will eventually become part of day-to-day operations. Showing the rationale for these choices to relevant stakeholders, will significantly increase buy-in.
So, what exactly is an ROI-based ESG strategy? An ROI-based ESG strategy has the following three characteristics:
- It is based on business needs and is results-focused
- It is built upon a comprehensive view of the desired future-state of the business to which ESG goals and priorities are aligned
- It incorporates quantitative measures of costs and benefits to help the business prioritize areas of highest value
It is quite easy to be inundated with requests for new ESG projects, some impactful some more speculative and hopeful. By focusing on business need, and filtering through a prioritization model, it is possible to find pragmatic, cost effective solutions that fulfill the business and ESG need, without getting caught up in trends or chasing “the new, new thing”.
Involving a diverse set of stakeholders from across the business, both infernal and external. For ESG, consult with board members and senior executives to determine areas critically to them. Similarly, seek input from employees, customers, suppliers, investors and leaders within the community, this allows you to build a comprehensive view of the future that is inclusive. Another advantage of this approach is that the project team becomes a facilitator between the various functional groups, as well as a consolidator and incubator of new ideas. Often the team will become an integrated function that refreshes and manages the integrated sustainability initiatives ongoing.
It is also important, to ensure complete alignment between the vision for the future state and the set of ESG projects to achieve it. And finally, it is critical to incorporate quantitative measures of effort, costs and benefits. For small and medium projects, an indicative business case may prove sufficient as the goal is primarily to prove that there is business value in implementing, with an approximate idea of cost. For large projects, it is advisable to build a robust business case and identify and quantify tangible benefits.
The set of projects to be implemented will inevitably be subject to some change and possible cuts, through the budget process. If the effort, costs, impacts and benefits for each project are understood, it is easier to prioritize the project set and identify the right candidates for delayed execution. The affected stakeholders will also have a better appreciation of the rationale for not implementing their project quickly if the rationale is explained in terms of quantitative business value.
Since an ROI-based ESG strategy is built by collaborating with a cross-functional team of stakeholders, the firm can ensure that the resulting set of projects address the requirements of all relevant stakeholders. By quantifying the costs and benefits and using that information to prioritize the project set, the team can ensure that the projects which deliver the highest benefit to the business are delivered first. And, finally, by aligning the project set to the strategic priorities of the business, the team can ensure that the limited resources and budget are being spent in meeting the businesses most pressing needs.
We approach these engagements by leveraging client teams, to learn by doing. We educate as we go and leave behind the framework, allowing our clients to become self-sufficient.
If you would like to discuss our approach in more detail, please contact us.