As you all know, I am an outspoken supporter of environmental and social governance (ESG) investing and the impact that it can have on addressing the challenges that companies face as they relate to the root cause of financial distress.
Can ESG help a company become profitable? We have seen previous examples of how companies have successfully embraced ESG and completely changed their operating model and have remained profitable. British multinational asset management giant Schroders convinced both Anglo Coal and South 32 to completely divest from coal because they knew what the future would hold.
When presented to shareholders, the common question that is asked to any turnaround professional is: can ESG investing make this company profitable? I recently read an article which points out four ways in which ESG can add profitable value to a company.
ESG can raise investment capital
The article points out that, with the indisputable evidence of the linkage between purpose and profit, investors demand ESG at growing rates.
Whether you are pitching to new green minded investors or responding to the requirements of existing funders, you can leverage ESG to access new capital or enhance existing funder relations by:
• Including your ESG Strategy and Performance in investor materials. Incorporating your ESG strategy and performance dashboard into your pitch deck, data room, and due diligence materials will streamline your capital raise process, de-risk your business model, and improve your ongoing reporting to investors on your cap table.
• Featuring your ESG Strategy and Performance on your website. Publishing your ESG Policy on your website allows investors to readily understand your company’s performance metrics and monitoring approach. A dynamic performance dashboard built into your existing website will allow investors to review progress on their preferred investment criteria over time.
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ESG can create operational efficiencies
Operational efficiency from digital ESG allows your company to spend less time on manual workflows and more time on delivering value to your customers and stakeholders. Proof of Impact clients use digital ESG to increase operational efficiency by:
• Enhancing resource allocation. Instead of dedicating staff time to manual ESG reporting workflows, pursuing an efficient digital solution enables your employees to spend their time acting on insights to improve the business.
• Reducing operating costs. You can’t manage what you don’t measure. Measuring your ESG performance allows your company to regularly identify sources of inefficiency and opportunities for improvement and rapidly implement cost-saving changes. For example, a recent HBR article cited the example of a pharmaceutical company that took steps to improve their waste, energy, and water management. By redesigning their drug production process using “green” chemistry principles, the company reduced energy, chemicals, and water required by 80% and cut waste generation and greenhouse gas emissions by 75%. As a result, the company saved $1.5 million in production costs for every 100 tons of products manufactured.
Build new revenue lines
The article points out that ESG is a way to evaluate your business performance through a new lens that goes beyond existing financial accounting measures.
Take advantage of ESG as a source of business innovation and new revenue opportunities by:
• Creating a plan to innovate on your product or service. Update your product or service strategy through a new lens. Start by thinking about how you could reduce the environmental or social risk associated with your product or service. Then consider how you could use your product or service as a tool to improve outcomes for people and the planet. For example, redesign your product with reusable or compostable packaging to reduce single-use plastic and lead to higher sales by attracting new impact-conscious customers.
• Adding ESG to your sales materials. A proven track record of reporting will allow you to differentiate yourself from the competition during the sales cycle. Demonstrating your environmental and social commitment will appeal to like minded minded customers and supply chain partners demanding transparency and positive impact. In addition, bringing data- driven tracking of your performance on commonly used ESG key performance indicators will also help you differentiate yourself as a business that is truly committed to driving positive change alongside your clients.
• Expanding to new markets. A strong commitment to ESG will open your company up to new markets, whether it is geographies with tighter regulations (for example, the European Union) or impact-minded demographic groups (for example, Millennial and Gen-Z consumers).
Build your brand and marketing
The article points out that, with a new wave of purpose-driven consumption, customers are demanding transparency about social and environmental impact performance.
The market will move towards the companies that have the data to support their brand identity. Take the following actions to build an authentic brand identity:
• Prominently Featuring Dynamic ESG on your Website. Your website is one of the most critical tools to shape your brand identity. Instead of a typical, flat annual CSR or sustainability report, include on your website an interactive, live, and continuously updating dashboard that allows visitors to view your ESG commitments alongside data that demonstrates your progress over time. Website visitors will be able to differentiate a surface-level commitment to ESG, or “greenwashing,” from a data-driven ESG performance management system.
• Publishing a Press Release. Use a press release to announce your company’s ESG strategy and commitment or provide updates on key milestones in your company’s ESG performance management. For example, you could use a press release to share how your company’s move to increase the number of female board members led to a ground-breaking company-wide policy to extend paid parental leave, resulting in increased employee retention, satisfaction, and performance.
• Developing Meaningful Content. Share your successes and transparently report on progress through your brand’s content channels, whether it is social media posts, email campaigns, or blog posts. Use A/B testing to understand which metrics and messages resonate most with your target audiences.
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Aligning purpose and profit
The article points out that a digital ESG strategy allows your company to calibrate business objectives with environmental, social, and governance outcomes.
By using ESG data to track your company’s performance and by taking the actions described above, your business can work to align purpose and profit. Managing ESG performance together with profit will prepare your company to generate the lasting competitive advantage required to market to the next generation of conscious consumers, attract investment from like minded investors, and build an authentic brand identity.
The Mystery Practitioner is an industry commentator that focuses on the shifting dynamics and innovative thinking that BRPs and turnaround professionals will need to embrace in order to achieve success in their businesses.
