Corporate Social Responsibility – or CSR – is likely to be a familiar term for anyone working for a large business. But have you heard of ESG?
ESG stands for Environmental, Social and Governance criteria – and is seen as core to the way today’s responsible businesses operate.
That’s why many large companies are starting to embrace ESG in favour of CSR.
While your business may not have ESG, it’s likely that your customers will and this is why it’s important.
Indeed, ex-Unilever boss Paul Polman – credited with helping to change the face of capitalism – has long argued that CSR alone is no longer sufficient in a new era of purpose-led business.
The difference is more than just metrics
In a nutshell, CSR represents a company’s efforts to have a positive impact on its employees, consumers, the environment and wider community. It’s a form of self-regulation that most large companies report on annually.
ESG, on the other hand, measures these activities to arrive at a more precise assessment of a company’s actions.
In particular, ESG looks at how businesses:
- Respond to climate change
- Treat their workers
- Build trust and foster innovation
- Manage their supply chains
And rather than producing impressive sounding rhetoric, ESG demands metrics.
So environmental programmes that demonstrate kilowatts of energy saved, tonnes of carbon emissions avoided, or gallons of water preserved – with targets for progression year on year – are what you’ll see.
ESG is key to investment decisions – including in your business
Evidence of ESG activity is now seen as vital to understanding corporate purpose, strategy and management quality of companies.
In particular, ESG is used as a key assessment marker for investors.
This is significant as already one-quarter of the world’s professionally-managed investment funds now only invest in companies that demonstrate solid ESG credentials.
This is being driven by the new generation of under-30s who’ve never known a time when the environment, recycling and clean energy haven’t been hot topics.
“The cash, we understand, is swashing around looking for a home. So if being green is your thing, then you’re in a good place…”
They make their views known through buying decisions, skewing towards companies that ‘do the right thing’.
And, with the advent of social media, a company that puts a foot wrong can soon find itself at the end of a ‘consumer backlash’, damage to its brand and loss of sales.
At a micro end, it results in McDonalds, for example, replacing plastic straws with paper. At the bigger end, it’s about those 30-somethings telling their pension providers to invest in ‘green’ or ‘ethical’ funds, rather than ‘dirty’ industries such as mining.
This washes through to retail banks and other financial institutions, with the consequence that despite the ‘current situation’ with money being tight, there is a bunch of investors with large sums looking for ESG-compliant projects to back.
The cash, we understand, is swashing around looking for a home. So if being green is your thing, then you’re in a good place…
Surviving the low-carbon transition
Companies responding to tenders will have noticed the trend of ‘green’ requirements. Indeed some businesses – HS2 being a prime example – have staked much on being green.
HS2 says it “will use the best of British skills and innovation, creating thousands of UK jobs and opportunities for SMEs. It will be one of the most environmentally responsible infrastructure projects ever in the UK.”
That’s why its worksites have solar panels rather than diesel generators, and contractors such as Speedy are winning work based on providing zero-emission vehicles.
The old days of being the cheapest, are rapidly fading. Now you have to be the cheapest and greenest if you want to win the work.
Whether you’re a coach or truck operator, these requirements are now feeding through and it’s interesting to learn that family operators (often sub-contratcors in the supply chain) are now converting with tactics such as buying gas-powered trucks.
Rather than having ESG as an ‘add on’ to business activities, many believe it’s essential to really embed ESG at the very heart of a company, especially when it comes to surviving the low-carbon transition.
Being prepared for the future
Nigel Topping, head of the We Mean Business coalition of 889 companies with $17.6trn in market capitalisation explains: “If these challenges are tucked away and approached solely for compliance reasons, they are not being integrated.
“And if businesses aren’t incorporating them into financial decisions and long-term planning, then they are not being taken seriously – which leaves the business poorly prepared for the future.”
So, how best to future proof your businesses for a low-carbon world?
The answer’s rarely simple – nor is it the same for any two companies. But there are clear pointers that act as an starting point.
The obvious one is transport, but the big questions is about really understanding how and where your business uses all its energy via energy monitoring software. That way you can start to assess where it’s being put to good use – and where efficiencies can be made.
When it comes to then using your energy data to set targets and drive further efficiencies and savings, adopting a system such as ISO 50001 can be beneficial.
ISO 50001 is considered the gold standard for energy management and provides a framework for implementing greater efficiencies via a process of continual improvement.
Not only can it exempt you from mandatory compliance such as the
Not only can it exempt you from mandatory compliance such as the Government’s energy savings opportunity scheme (ESOS), it also provides excellent data for ESG reporting purposes.
So even if your company isn’t currently ESG compliant in all areas, you can certainly get ahead of the game from a transport and energy perspective.
