WINTER 2021IMPACT

The Golden Age
of ESG

Every now and then, we observe a pattern and foresee a trend. When this happens, we write about it. In this article, we share our perspective on why, if you haven’t done so already, you should develop and implement an ESG program. ESG has rapidly progressed from being a peripheral topic to taking up the main agenda of boardroom meetings. This strategic shift to including environmental, social and governance factors in core decision-making is due to several external factors. The COVID-19 pandemic has brought concerns about health and wellness, and there is economic and social anxiety driven by economic inequality and racial injustice. Increased influence from millennials and women in decision-making act as additional drivers, not to mention technological disruption that enables the development of more efficient and sustainable business models and, of course, climate change with all the challenges that it poses.

Successful ESG programs offer benefits that reach beyond sustainability. Yet, many choose to focus on risk minimization, doing the bare minimum at low cost, scraping by regulations and public scrutiny. However, a company who truly wants to make ESG a competitive advantage must choose a different path and make it part of their core business.

Revising your company’s strategy is, and should be, a big decision. Here are some of the main reasons why, in spite of this, you should make ESG part of your business:

01

COMPLY WITH REGULATORY REQUIREMENTS

Pressure to act in accordance with ESG comes from multiple sources. The day you will be legally forced to comply is most likely not that far away, as the US and Europe are already focusing increasingly on ESG disclosures and policymakers are pushing for more transparency from both public and private companies. Staying ahead of regulatory requirements and policymakers will allow you to focus on developing your core business while others are trying to understand and comply with new legal requirements.

02

IMPROVE ACCESS TO COMPETITIVE FINANCING

While regulators tighten the screws from a legal perspective, investors are redirecting funds as they see major yields in the impact sector and in ESG-focused companies. In the meantime, rating agencies and financial institutes are adding ESG as an evaluation criterion when assessing companies’ performance. Altogether this means that companies with strong ESG performance will have better access to competitive financing, whether it be in the form of private equity or loans.

03

GET A TOP LISTING AMONG TOP TALENT

Strong ESG performance also has an impressive effect on talent. Companies with strong ESG performance are rewarded with higher levels of staff satisfaction and greater employee retention. As we have already learned, satisfied employees are more productive and are more concerned with the quality of their work. We also know that employee retention makes financial sense, in relation to employee turnover, not to mention ESG’s impact on talent acquisition. Companies with strong ESG performance are considered more attractive to work for, and, among the younger generations, Gen Z in particular, strong ESG performance is a necessity.

04

INCREASE YOUR VALUATION

With everything else being equal, your ESG program, if properly developed and executed, will come with an ESG arbitrage. You can expect your valuation to increase regardless of whether you are private or publicly traded. If the testaments above aren’t reason enough, consumers and customers, that is the public, will reward what they consider to be ESG-focused companies. In both the short and the long term, this means growth and increased interest in capital markets from both institutional and private investors. Developing your ESG program might seem overwhelming, but it can be implemented step by step. Start by developing your overall strategy and then break it down into action points. And don’t be afraid to communicate your ambition and progress. It will make your organization more focused and accountable. And your stakeholders will reward you for it. We are entering the golden era of ESG. Make sure you join.

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