Companies that overlook ESG criteria risk losing their competitive advantage among peers and favour among investors, not to mention missing out on new talent. (Crédit: Getty Images)

Companies that overlook ESG criteria risk losing their competitive advantage among peers and favour among investors, not to mention missing out on new talent. (Crédit: Getty Images)

The value of ESG and its advantages on many facets of business are consequential. Companies that overlook ESG criteria risk losing their competitive advantage among peers and favour among investors, not to mention missing out on new talent.

Governance professionals have found visibility into sustainability and ESG issues somewhat obscured and therefore not easy to grasp let alone implement. Boards require more support and resources in order to meet investors’ and shareholders’ expectations when it comes to ESG disclosure and transparency. Transparency is an oft used word, but knowing precisely how much and what to disclose is another matter.

Until recently there were many different frameworks and rating agencies, which understandably caused confusion at many levels of an organisation. ESG metrics have been devised by the World Economic Forum’s International Business Council (IBC), a working group of 120 CEOs, with the support and involvement of the Big Four accounting firms. “Diligent hosted a  in order to inform and educate board members about IBC’s work to consolidate all existing ESG frameworks into a single set of global standards,” explains Mr Healy. “This is a critical step for true adoption of environmental, social and governance (ESG) principles across today’s organizations, and Boards will play a pivotal role in this process.” 

Investments in companies that commit to ESG principles are rising exponentially, and promise to bring value not only to a business but also beyond. “This year has shown record investments in sustainable funds, which indicates a fundamental shift rather than a bull-market phenomenon,” notes Liam Healy, Managing Director EMEA at Diligent. The fact that many companies accept not only to measure but report on their environmental and social responsibility represents a real indication of change for the future. Boards must stay informed on the latest ESG investment trends and topics to ensure their companies don’t fall short of meeting this growing demand.   

Being sustainable = staying relevant

ESG principles have become an increasingly popular way for investors to evaluate the sustainability of a company they might want to invest in. Although some companies have been slower than others, most are ready to implement ESG having acknowledged its positive impact on business. The criteria help to better determine the future financial performance of companies in terms of return and risk. While the connection between ESG and financial performance has not always been clear, shows that companies with a substantial commitment to ESG exhibit less risk and greater financial performance than other companies.

ESG-focused companies are proving to be more attractive employers and result in more loyal employees among millennials, the generation that constitutes a major portion of today’s workforce. Millennials exhibit a high preference for companies with a sustainability track record and plan, according to a . 40% of those surveyed have taken into account a company’s sustainability performance when choosing a job. A third of respondents even left a job because of lack of attention to ESG issues and another third claimed to work harder and give more time to sustainable companies. “Not only will taking ESG criteria seriously help a company to attract and retain future talent, but also obtain more revenue from products,” says Mr Healy. “A revealed that 85% of respondents would be willing to pay more for a product from a sustainable company that serves stakeholders well.”

It is becoming clearer for boards to see just how ESG initiatives can drive long-term value and organizational success. The introduction of new global standards presents an ideal opportunity for boards and executives to get to grips with the implications of ESG principles, and how technology can be used to operationalize them and measure their impact in practice. Board members, executives, governance and compliance professionals can elevate ESG issues to the board to incorporate principles and metrics into their reporting, to not only remain convincing to investors and shareholders but all stakeholders.

Diligent is committed to continuing discussions surrounding ESG. Stay informed on what’s next in ESG reporting: Diligent’s ESG and Stakeholder Capitalism resources for Boards help boards and company leaders understand and operationalize ESG metrics across their organizations.