While making a positive impact on the environment and being a good corporate citizen are reason enough to implement an Environmental, Social and Governance (ESG) plan, an increasing number of middle market companies are recognizing that it actually makes good business sense too. As more mid-sized companies adopt sustainable innovation across their business models, those that don’t will be at a significant disadvantage in many areas, from capital raising to employee retention.
One of the most common drivers of interest in ESG is the changing attitudes of investors, employees and other stakeholders. Emerging business leaders, in particular, have been very vocal about their preference to work for, invest in, and do business with companies that protect the environment, support social causes and promote diversity, equity and inclusion (DEI).
Especially in ultra-competitive marketplaces like the New York metro area, ESG can be a huge differentiator for companies that are demonstrating the positive impact they have in these three areas. For example, many of the contractor and subcontractor clients we work with leverage ESG metrics in their bids, allowing them to stand out among other companies in today’s ultra-competitive bidding field.
In industries like construction and manufacturing that are facing major labor shortages, this differentiator can be what attracts and retains the next generation of emerging leaders. In turn, happy employees drive satisfied clients, higher productivity levels and long-term sustainability for the company.
While many ESG results, such as DEI initiatives, volunteerism and governance policies, are evaluated qualitatively, there are also quantitative metrics that reflect a direct impact on the company’s bottom line. Reducing the business’s carbon footprint through energy efficiencies, paperless processes and other green initiatives yields significant cost savings, as do the tax credits and government incentives that come with many of these strategies. Add to these benefits the risks that are mitigated through strong governance, internal policies and transparency, and the value is even clearer.
With so many more companies beginning to track and document their ESG impact, it is no longer enough for a company to simply say it – savvy consumers, clients and stakeholders expect proof. A formal ESG plan not only lays out the ways in which a business will accomplish ESG goals, but also provides the framework to generate powerful data that can tell a company’s entire ESG story. And with the right choice of technology, this data will continue to flow easily into readily accessible reports that provide tangible evidence of ongoing improvement.
The long-term impact of an effective ESG program will far outweigh the short-term output of resources, but many middle-market companies may still be on the fence. When we advise companies on ESG at Grassi, we typically begin with a readiness assessment to gauge how prepared they are to adopt an ESG framework, or if more work needs to be done.
Even if a company is not yet ready, there is plenty they can do to prepare. At the very least, companies should be identifying the ESG issues that are most important to their stakeholders, reviewing their supply chain to determine vendors’ commitment to ESG, evaluating their carbon footprint, and getting the conversation started with their management team and employees.