Customers like to buy from sustainable businesses; employees want to work for them; and lenders are prepared to offer them finance at more affordable rates. Increasingly, progress on sustainability is seen as a signifier of company health.
However, new research by Investec suggests that mid-market businesses that are doing well on sustainability could miss out on the advantages if they don’t collect, analyse and communicate data on environmental, social and governance (ESG) issues.
In a survey of 500 mid-market companies in the UK, more than half said they believed ESG to be “business-critical” to their organisation. However, over the past 12 months, just 31 per cent of those developing or implementing a strategy had invested in technology and systems to better capture ESG data, and a similar proportion had invested in enhanced ESG reporting capacities.
Nearly a quarter (23 per cent) of those with a strategy under way say they are only somewhat or not at all effective at collecting ESG data. And more than a third (35 per cent) say limited data metrics on ESG performance is the greatest barrier to accelerating progress on sustainability.
The danger for many businesses could be that they have poor visibility of how they are doing on sustainability and little idea of why. And, even where they are performing strongly, they may struggle to provide adequate evidence to stakeholders, and consequently miss out on the potential commercial advantages of strong ESG performance1.
Jo Hunter, founder of food producer Piglets Pantry, says that, despite having systems and software in place, the volume of data can be daunting. “We've been putting lots of practices in place, knowing that we're doing good. But to show and track that is quite hard,” she explains. “I want to know that I can trust the data we publish to make sure it’s verified and valid and that we’re not greenwashing.”
One way to tackle this issue is with a focused data strategy. Alicia Forry, deputy head of research at Investec, says that companies are often knowledgeable about which aspects of ESG matter most to them. “For example, it makes sense for a very energy-intensive manufacturer to focus on reducing emissions, because it will lower their costs over time and make their processes more efficient,” she says. “It's rare that companies struggle to identify what is material for them.”
Start by looking inwards
Another part of the data challenge is to build the case for ESG as a commercial imperative for the business. Some businesses choose to start with a little introspection. In Investec’s research, 39 per cent of businesses with a strategy in place said they had secured operational improvements or efficiencies by integrating their ESG strategy into their work.
Ian Webb, CFO of schoolwear company Banner, points to his own company’s experience of realising the commercial case for investment in sustainability. When Banner focused on reducing the plastic content in clothes hangers that came with goods imported from East Asia, it found that its efforts paid off in surprising, commercially beneficial, ways. “We realised we could fit more garments into a container with hangers that weighed less,” he recalls. “Being more sustainable doesn’t always equal more cost — [sometimes] quite the opposite, in fact.”
Such savings are just the start, argues Steve Cunningham, CEO of smart energy specialist GEO. The next stage is to recognise how customers are engaging with ESG issues. However, Cunningham says, customers will expect some evidence of what’s on offer.
“We believe that, if we do a good job of proving what [energy] we save for customers, it will make it easier for those customers to engage with what we do,” he says. “Our customers all have an obligation to demonstrate that they are saving both carbon and money for consumers. By giving them a better set of tools, we're making their job easier and helping them to prove what they’re doing. This means consumers can trust what they're getting. And we should get an incrementally better share of the market.”
James Amar, strategy and CSR director at food distribution business RH Amar, makes a similar point. Customers are becoming more demanding on ESG performance, he says: “Lots of our customers are trying to understand where their supply chain is in the whole roadmap of environmental sustainability. The processes and reporting we’re putting in place now will be very much part of doing business with the likes of Tesco and Sainsbury's.”
Iterate systems over time
At least at the outset, ESG data infrastructure does not have to be hugely complex and sophisticated. A range of support is available from sources such as ESG consultants, through to business groups such as the Federation of Small Business, on how to get a basic collection and reporting system up and running. Such systems can be iterated over time as the business understands more about its sustainability goals and develops its strategy.
One move that could make a big difference, Investec’s research suggests, is finding ways to make employees and managers at the business more accountable. Asked which single measure had made the greatest difference to the success of their ESG strategies to date, 39 per cent of companies cited linking ESG criteria to personal development and performance reviews.
Looking at ESG performance on the departmental, as well as organisational, level can provide useful insights. Such focus can encourage the whole business to begin building data sets and reporting structures that will allow them to tell a positive story more widely.
There is strength in numbers. The more consistent and compelling the data on sustainability, the easier it becomes for people inside and outside the organisation to believe in your message.
