What are the benefits of tracking ESG?
There are varied reasons to begin the process of implementing an ESG programme. Preparing your business for an ESG programme could be driven by a variety of different factors. Your business might be looking for investment or might want to attract the best talent as an employer of choice.
One example of a driver is because of a scandal or tragedy. The collapse of the Rana Plaza building in Dhaka, Bangladesh in 2013 led to the death of more than 1,100 workers. This event put intense public pressure on international clothing retailers, questioning practices across the industry, independent of whether the retailer had sourced from this facility. Fashion retailers have taken concerted action to improve safety in their supply chains, even if they are several tiers removed.
In recent months, concerns about forced labour and discrimination against Uyghur people in the Chinese province of Xinjiang have affected the supply chain of well-known global brands. Companies from sectors as diverse as technology, clothing and automotive sectors, including Apple, BMW, Gap, Huawei, Nike, Samsung, Sony and Volkswagen have been confronting their supply chains in China. This has also spurred laws around the world calling for better attention on supply chains, sanctions against companies and significant consumer pressure.
Whatever the reason and no matter the size and scope of your business, implementing an ESG programme means that you can be prepared for whatever driver requires you to make a report or a disclosure.
The world is demanding more visibility over the value chain, from where products are sourced to the welfare of those involved in making, shipping and packing them. Consumer decisions are increasingly led by ethical concerns. Failure to hear those concerns and respond to them can significantly dent customer loyalty and lead to long term risks.
Leading by example is a key part of maintaining a strong market position and being an industry leader. Evidence of ethical considerations in the value chain can sway major purchasing decisions. Businesses have the opportunity not just to react to supply or demand shifts, but to actively influence third parties and create positive change throughout the value chain.
Institutional investors have growing expectations for ESG to be integrated across the business. Long-term returns, reputational management and decreased risk are key features which are driving external ESG investment.
Regulators around the world, from the SEC in the US to the Securities and Futures Commission of Hong Kong are taking concerted actions to expedite green financing and wider ESG reporting. The UK requires TCFD disclosures for large companies while stock exchanges are making concerted efforts to encourage disclosures.
Consumer demand is affecting the corporate bottom line. Consumers are increasingly expecting ESG practices, from good environmental awareness to actions against modern slavery. Younger generations are also seen as willing to pay more for socially responsible products and services.
Reputational damage can have a significant impact on a company. ESG issues cut across most potential areas of reputational damage. This could include child labour in the supply chain or series governance breaches like bribery or tax avoidance scandals.
Employee attraction, retention, engagement and productivity can be significantly impacted by ESG issues. Younger generations are actively looking for companies to work for who share their values. Up to three quarters of people under 40 actively consider a company’s ESG commitments before deciding to work there.
More large businesses are being required to report on ESG. As part of a larger company’s supply chain, a smaller business may need to report on various ESG issues ‘up’ the supply chain towards the larger company. For example, a larger company might need to ensure all its suppliers pay a living wage, and your business may need to report on that.
Supply chains can often be complex and difficult to understand. Many layers of suppliers and reliance on trust and third parties can expose us to risks of non compliance, fines and inefficiencies. Shifting this mindset to a collaborative value network is crucial to business continuity, reducing ethical violations and ensuring long term sustainability.
Reducing waste and inefficiencies are key hallmarks of well managed businesses. Fair treatment of suppliers and third parties means a greater output and enhanced productivity due to higher quality and better relationships. When supply chains are squeezed, customers and companies prefer to deal with strong relationships they know will weather storms.
For more on ESG, including free guides and policy templates, visit vinciworks.com/esg