As CEO of Business SA, South Australia’s Chamber of Commerce and Industry, I would first like to focus on the “environment” as it relates to the physical operations of many companies, particularly those involved in energy, water or waste intensive industries.
As business responds to a changing climate and greater environmental constraints, there is a growing imperative for businesses to formalise their responses by adopting an Environment, Social and Governance (ESG) policy for their organisation.
An ESG policy is a set of criteria used to evaluate a business against a broad range of criteria. Under the “environmental” part of a ESG policy, it will address matters ranging from carbon emissions, energy consumption, water consumption, pollution or waste cycle management, land management, fleet management and more.
ESG policies are increasingly relevant for a much broader range of companies and are no longer only the domain of industries with a more easily measurable environmental impact.
Small businesses, which make up 95 per cent of all businesses in South Australia, may ask why they should bother with policies that historically have been considered the domain of “big business” and question whether they will make a difference to their bottom line. In my experience, ESG policies are already having an impact, as the primary driver are customers, not government. Putting it more succinctly, your customers and consumers are paying more attention as to whether you have an ESG policy and whether it is authentically embraced throughout your organisation. If you don’t, your business performance may suffer.
In 2018, Business SA surveyed its membership base to ascertain a statistically valid perspective on how the local business community viewed climate change and the associated policy proposals to address it. We found that:
- 69 per cent of South Australian businesses believed human activity has led to climate change
- 61 per cent of businesses wanted the Federal Government to continue to adhere to its commitment under the Paris Agreement to reduce carbon emissions by 26 to 28 per cent of 2005 levels by 2030
- 84 per cent of businesses thought it was important that all sides of politics agree on a sensible policy to reduce carbon emissions at minimal cost; and
- 61 per cent of respondents advised their customers expected businesses to play their part in reducing carbon emissions.
Having a publicly accessible ESG policy in place is also becoming important as the next generation of leaders move into the business community. In a recent Morgan Stanley Bank survey, nearly 90 per cent of millennial investors indicated they were interested in pursuing investments that more closely reflect the values they hold.
The consideration of an ESG policy can lead to changes to smaller, simpler initiatives such as moving to digital receipts to reducing paper use, using non-disposable coffee cups, eliminating single-use plastics, shifting to renewable energy, or determining if recycled materials are viable for production processes. Although there may be an initial investment, these changes can save a business money in the long run and have the added benefit of decreasing a businesses’ carbon footprint.
The additional bonus of such changes is the opportunity for brand-enhancement.
With the next generation of consumers entering the market exhibiting a greater environmental consciousness, positioning a brand as having a low carbon footprint provides an edge in marketing and provides a service that consumers are now seeking. However, that edge is fast becoming an ‘in the game’ factor as opposed to market leading. In the future, you will simply be uncompetitive without some consideration of ESG policies relevant to your business and industry.
Some businesses can still make the choice to implement an ESG policy, however all businesses will eventually need to become resilient as regulatory requirements increase to combat carbon emissions and restrictions on items like single-use plastics. An ESG policy allows for future planning and future proofing for such changes. The policy should be seen as an opportunity to proactively make changes ahead of the curve, to provide a competitive advantage and deliver to consumers products that meet consumer values, rather than implementing changes at short notice and at a greater cost to meet rigid government requirements.
The correlation between ESG and strong performance is also causing a stir in the insurance and financial sectors as these industries gather information and understanding on the correlation between ESG factors and the strong performance of companies across industries.
The benefit of analysing ESG for insurance is to identify early warning indicators of deteriorating circumstances before they occur. ESG indicators are thought to be a predictor of whether a business has a higher probability of experiencing future harmful events. Insurance companies are now undertaking research into the correlation and there is the potential ESG predictors will be used by the insurance sector in the future.
Business SA recognises that for many businesses, ESG policies may not be front and centre. However, don’t wait too long before they do, as you will be left chasing your tail. As importantly, your customers, suppliers, financiers and insurers are watching.
This new column is designed to share valuable information and advice, cutting-edge initiatives from across the world, and the results of collaborative focus group workshops amongst our members, to highlight the growth of the low emissions economy in South Australia.
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