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Does ESG lead to better performance?

The transformation towards establishing a more sustainable environment is witnessing popularity. Hence, the significance of ESG is expanding. Companies are now more focused on adopting methodologies for the betterment of the overall well-being of the individual and the environment. From adopting sustainable methods of production to establishing transparent governance policies, everything falls under the umbrella of ESG.



Key drivers of ESG-


While the imperative of incorporating ESG has been in discussion for more than a decade now but it’s only recently that its implementation has picked up the pace. There are several driving factors for the same. Some of these are enlisted below:

· Environmental concerns


Resource constraints and the growing number of environmental disasters motivated organisations to integrate ESG factors into proactive business strategies. Hence, the companies are now focused on reducing their carbon emission and minimising their carbon footprint.


· Social issues


Social issues like inequality and discrimination can negatively impact the brand image of an organization. Hence, organisations are now more focused on overcoming these issues by focusing on inclusion, pay parity, and promoting fairness and diversity.

· Governance issues


Transparency and accountability have become significant for investors. They demand more information on the company's operations and the factors driving its decisions. Hence, companies are now more focussed on establishing a transparent business approach.

Hence, these drivers are triggering the adoption of ESG criteria and syncing them with their business practices to address the challenges.



Five key benefits of how ESG is helping in improving the profitability and performance of the organization


From the above discussion, we can conclude that organisations are now adopting environmental, social and governance criteria to make their business operations more reliable and trustworthy for the end user and stakeholders. There are several benefits of implementing ESG practices:

1. Assures top-line growth


Every organisation strives to gain a competitive edge and a greater market share. Since consumers have become more aware in the present time, and they are more inclined to invest in sustainable products and processes, organisations are now more inclined to adopt strategies that are in coherence with these changes in the market.


GreenPrint’s Business of Sustainability Index report released in March 2021 shows that around 75% of Millennials are willing to pay more for environmentally sustainable products in the US. So, if your organisation is focused on adopting strategies and methods which are for the benefit of the environment and showcases positive governance, it has a greater probability of expanding its reach to the end user and gaining more market share.


2. Enhanced risk management


Adopting ESG principles can help a company manage its risks in several ways. For example, a company can reduce regulatory risk and legal penalties by focusing on environmental protection and sustainability. Failing to adhere to the compliances can bring defamation and cast aspersions on the name of the organisation. However, by adhering to the ESG criteria, the company put forth its name as a sustainable organisation. Thus garnering the attention of the investors as well as the end users.


3. Retaining top talent


The internal assets of the organisation or its employees play a significant role in enhancing the overall brand image. A company can ensure higher productivity and meet organisational goals with a positive workforce. By promoting diversity and inclusion, a company can reduce its risk of legal challenges and improve its ability to attract and retain top talent. Being transparent and accountable also enhances its relationship with the investors and the stakeholders. Thus integrating ESG principles into an organisation's operation can help it manage risk and have the best talent working for them.


4. Cots-saving


When an organization focuses on sustainability and resource efficiency, it reduces its energy usage and waste. Thus it leads to lower operational costs. For example, a company can invest in employee training and development. It eventually, helps in boosting the organization’s productivity. Moreover, with this approach, the company can reduce the cost of hiring and training new employees.

By following transparency and accountability, a company can enhance its reputation and credibility. It also helps in building a strong relationship with the stakeholders. Since investors are now keener to invest in sustainable organizations, having a positive ESG report makes it easier for them to source funds from investors.


5. Improved reputation and relationships


Organisation addressing social issues like diversity, and inclusion, ensuring fair labour practises and building a community helps in building a positive brand image. Also, it helps in building a strong relationship with the stakeholders, their employees, and the end user. As per Galllup Study, around 48% of investors are interested in sustainable investing funds.


Conclusion


In conclusion, adopting environmentally friendly practices can help a company save money on energy and resources. Thus, implementing strong governance practices, such as transparent and effective decision-making processes and robust risk management systems helps in building a good reputation. Also, it improves a company's performance by reducing the risk of legal and regulatory challenges.


All this has boosted the demand for certified ESG experts who assess the organisation's sustainable operations. In the times to come, the concern towards the environment is going to grow, and hence it is the right time to dip the toe in the ESG domain. Director’s Institute is focussed to create a pool of ESG experts with its certification course. This comprehensive learning program encompasses the fundamentals of ESG along with its real world applications. Join hands with a successful career today.


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