The Role of ESG and its Actionable Purposes

Author: Saranya Krishnan
Last Updated: Jan 17, 2023 23:42
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The Role of ESG and its Actionable Purposes

Companies around the world are starting to appreciate the importance of ESG. In fact, more than 53% of investors, up from 47% in the year 2021, consider climate change to be the most significant factor influencing their investment decisions, according to a study, ESG CIO survey 2022. According to the study, 78% of respondents are worried about how climate change will harm the economy.

How do the three ESG components support a successful global strategy?

Environment: To develop a successful global workforce strategy, organisations must concentrate on a number of crucial aspects, including the environment. These days, a lot of job candidates are worried about the negative effects of their carbon footprint. It is hardly surprising that job seekers favour companies with less environmental impact given the growing climate problem.

Social ethics: The foundation of a responsible investor is social responsibility and ethical behaviour. Positive business outcomes are driven by social impact, which is enhanced by contented investors and employees.

Governance - political, regulatory, legal, and ethical:

The law of the game is corporate governance. It depends on your style of play and how you interact with other players. When we discuss governance challenges, we are referring to the political, regulatory, legal, and ethical factors that will influence whether your organisation will be able to accomplish its objectives.

Knowing foreign regulations (including tax ramifications), cultural variations in business behaviour (such as how to negotiate contracts or handle conflicts amongst employees), and local customs in each country where you operate are necessary for managing a global workforce.

Strong leadership abilities are needed at all levels of your organisation to successfully manage your global workforce. Successful leaders are those who are aware of how their decisions affect others around them both locally and globally.

How can the three ESG pillars be used to create a global workforce strategy?

Regardless of size or location, ESG concerns affect every industry and firm. Local business practices that incorporate sustainability into their fundamental business models can be used to implement solutions to these problems.

As organisations learn more about these problems, they also realise that they are not the only ones dealing with them; peers from various industries and regions are also working on related concerns, though with different solutions.

Five Advantages of Using ESG Standards in Your Company

  1. Compliance

ESG reporting is now required in a number of nations, including the UK, the US, China, New Zealand, and European nations, among others. The ESG disclosure report offers consumers, investors, and NGOs information and transparency into an enterprise's operations. In fact, it is fascinating to observe how multinational corporations are approaching ESG and fully incorporating ESG reporting into their regulatory frameworks. For instance, rules and recommendations on fostering sustainable finance in Japan were released by the Financial Services Agency, a government organisation in charge of monitoring the banking, security, exchange, and insurance sectors for financial stability. The EU's sustainable financial framework for Europe includes a number of rules that emphasise the goal of making Europe the first carbon-neutral continent by 2050.

If you want to keep your social licence, build relationships with other businesses, and look into international investment options, ESG becomes a crucial need. ESG increases the resilience of your company.

  1. Investment

Businesses now understand the benefits of sustainability thanks to the recent pandemic. Investors in the "new normal" are seeking out companies that are ethical in their business activities and have a sustainable business model. Maximizing resources might involve, among other things, turning a vacant car garage into a day-care centre, outlawing the use of plastics, implementing paperless workplaces to the greatest extent possible, etc. All of these factors have a significant impact on the investor's choice while evaluating potential investment possibilities. 48% of investors are interested in sustainable investment funds, according to a Gallup poll. The claim is supported by a number of research studies.

  1. Competitive advantage

In today's competitive business environment, it is crucial to stand out from the competition by providing distinctive goods and services as well as putting the satisfaction of your clients and staff first. A solid ESG plan should contain strategies for enhancing ethics and commitment to acting in your business's customers and employees' best interests. Given the rising cost of gasoline and the amount of energy being used in our daily lives, consumers are happier and more willing to do business with businesses that can provide them with sustainable purchasing options.

  1. Access to talent

The emerging generation Z workforce is increasingly aware of ethical workplace practices, diversity and inclusion initiatives, charitable contributions, and other moral standards. A positive workplace culture is established with the help of ESG that will draw in and keep top personnel. Many people now see the need of protecting the environment, especially in the wake of the epidemic, and they want to work in an atmosphere that shares their values. Despite the fact that they are already acting, they want to know what else they can accomplish within the business.

  1. Cost reduction

According to McKinsey analysis ESG policies "may affect operating profits by as much as 60%,". ESG can significantly help with cost savings. Consider the price of obtaining raw resources. One of the few cost-effective ESG strategies is to develop environmentally friendly products, innovate with recycling options, redesign equipment, introduce a fleet of electric delivery trucks or vehicles to reduce fuel consumption and carbon emissions, give employees flexible work schedules, collaborate with suppliers to digitise the entire supply chain management process, switch to a cloud-based system to reduce the carbon footprint, and use renewable energy sources.


How does ESG matter to employees?

Recent international events have raised awareness of social sustainability. With more and more people worrying about the social impact of their occupations, employee and worker attitudes have changed substantially across the globe. Due to a perceived lack of work security, flexibility, and decent compensation in 2021, millions of people left their occupations. Many businesses lost talent as a result of a clear lack of general pleasure in the job. The ability of an organisation to appeal to the emotional reasoning of employees by openly showcasing deeply ingrained ESG endeavours will most likely have a longer-term impact on retention, even though changing HR policies regarding employee compensation, flexibility, and job security may result in some short-term improvements for businesses looking to hire. The capacity to keep their ESG approach visible to their staff, according to 63% of organisations in Hong Kong, has a substantial impact on their success, according to Mercer's 2021 Global Talent Trends Report.

Furthermore, according to Mercer's research, ESG has become a critical component of motivating today's workforce because one in three workers prefers to work for companies that are accountable to all stakeholders, not just shareholders and investors. Employers with the highest ESG scores perform 14% better in terms of employee satisfaction globally and are 25% more appealing to potential employees than the average. In exchange, motivated workers improve a business' talent pool for long-term success. While it may seem too good to be true, involving employees in ESG practises enhances a company's financial performance and offers staff members a sense of purpose by allowing them to have an effect via their work.


How can businesses engage with employees?

ESG tactics encourage investor trust and company resilience. This was demonstrated by the fact that businesses with well-established ESG strategies performed better and attracted more investment throughout the COVID-19-related financial difficulties. However, a company's ESG strategy will function poorly or become unsustainable if it lacks the crucial components of employee buy-in. The likelihood that all of the company's ESG investments would not produce the expected results in the future is increased when ESG investments are made without a follow-up effort of employee involvement. The Top 4 methods that companies can include their staff in ESG performance are as follows:

1) Create buy-in for your employees.

Aside from the requirements for ESG reporting, organisations must proactively develop support for ESG through a strategic declaration of intent. As previously stated, ESG initiatives cannot perform to their full potential and may yield a negligible to a negative return on investment without this buy-in. Employees must comprehend how ESG tactics will benefit both themselves and external stakeholders (customers, communities, and investors via company brand reputation) in order to prevent them from becoming a wasted undertaking or nothing more than a false ideal.

Organizational leaders also need to be aware of the benefits their ESG approach brings to their workforce. The question of what this strategy implies for employees can be answered by management, who can then set an example for others and more readily inspire them to responsibly carry out the tasks required of them to realise this strategy. Half of the work required to develop an ESG strategy has already been completed with employee buy-in.


2) Collect employee input.

Business owners should take employee input into account when developing their ESG strategy, just like they would with other types of stakeholder engagement. Employees will more readily assist businesses in navigating their strategy when they feel a higher sense of ownership and personal interest in the projects, which will have a greater influence on the social and environmental levels. Employee support for racial diversity, for instance, can positively influence company policies (such as the Diversity and Inclusion Policy), resulting in the effective hiring and expansion of a more varied workforce at all levels of the firm.

When it comes to ESG efforts, asking for, acknowledging, and acting on employee feedback enhances quality, productivity, customer service, and safety while also boosting workplace morale. Businesses should solicit employee feedback whenever possible and give it positive acknowledgement and reinforcement.

3) Embed ESG in your work culture.

Companies that fully implement their ESG strategy by incorporating it into the framework and culture of their organisation will inevitably experience higher levels of employee engagement. Even if ESG methods entail an initial cost like any investment, they have a history of improving the financial situation. Employee engagement in sustainability-related issues outside of the typical CSR/Philanthropy departments has been shown to enhance a company's competitive advantage, financial performance, and brand reputation. Employees have more opportunities to see that their efforts are genuinely having a positive impact when they have the option to generate sustainability outside of these conventional silos.

A well-ingrained ESG culture also pulls in talent and boosts retention rates. According to a Marsh & McLennan survey, businesses that value diversity, understand their employees' needs, and have high employee satisfaction ratings also tend to be the most attractive to recent college graduates.

4) Drive top-down and bottom-up behaviour change.

When it comes to successfully implementing a new value system, individuals in charge of the transformation must concentrate on developing the tools and training necessary to assist each individual in aligning with (and/or adjusting to) the intended way of thinking and doing. It takes time and transparency from each participant for the organisation as a whole to develop an unconscious habit. All organisational levels must be held responsible for their contributions to advancing the ESG strategy in order for it to be established. ESG initiatives have little impact on employee satisfaction unless employees are informed and actively involved. To reap the rewards of ESG performance for the workforce, it is imperative to communicate clearly and craft an engaging ESG narrative.

Conscious consumerism is one of the main things that the COVID-19 pandemic has fuelled, and many businesses have responded by making net-zero or carbon-neutral commitments by vowing to cut greenhouse gas emissions and invest in climate change.

Considering ESG today has assumed more significance than what it could be tomorrow. While keeping the companies in line with this, also helps companies strengthen their financials. 

At Job Booster India, we have ESG specialists who can assist you in designing an ESG strategy specific to your company’s needs and interests. Techniques that can be specifically focused on helping you get close to social causes like the environment, poverty, rural enablement, upskilling, education, women's empowerment, and many more. Do get in touch to improve your organisation’s ESG impact!

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