New Investec research among mid-market companies in the UK finds that most companies are either developing, implementing or have implemented an ESG strategy. And the biggest motivating factor for doing it is to enhance their brand and reputation.
Done well, an ESG strategy weaves sustainability into the DNA of the business so it is reflected in everything from product innovation to talent retention.
“Sustainability is very important to the buying decisions of many of our clients — if you don't have a plan, it’s a non-starter,” says Jo Hunter, founder of food producer Piglet’s Pantry. “Building a culture internally is also incredibly important if conscious practices are going to be instilled across the business.”
It all starts with purpose
In the Investec research, 44 per cent of mid-market companies agree that ESG policies and practices can only be implemented when the organisation's purpose is clearly defined.
For Steve Cunningham, CEO of geo (Green Energy Options), defining a strong company purpose has made ESG an integral part of the company. “Deciding what our mission should be and understanding where ESG was crucial was really important,” he says. “For any business, your legacy is critical to understanding why you have ESG goals and why you should fit your business around them.”
Cunningham explains that attitudes to reporting on ESG have changed since geo defined its purpose. “We were running a good business, but we didn't know where we wanted it to go,” he says. “If you’re only reporting on ESG because you think your investors or customers want you to, people will always hate reporting on it because it’s not what your business really believes in. Your supply chain and customers won't buy into it.”
The Investec research highlights how important partners, customers and suppliers are to the process. Among those with a strategy at some stage of development:
- 42 per cent of surveyed companies say ESG has a critical role in reducing supply chain risk
- 45 per cent agree that ESG credentials are an increasingly important factor in the procurement/tender process
- 41 per cent agree that customer buying decisions are increasingly influenced by ESG policies and practices
“Some of the new business we've taken on in the last couple of years has been from far more ethical brand partners, so there has to be much closer alignment in supplier values,” says James Amar, strategy and CSR director of food importer RH Amar.
“We are making much more active choices on our supply chain — lobbying them to make better conscious decisions,” says Jo Hunter. But she says that instead of refusing to work with the organisations that do not adopt the same practices, education and collaboration come first. “If you want to work with people you must work in true partnership, and sharing best practice and knowledge is the best way to do that.”
Weave sustainability into the fabric of the business
Establishing a company mission is the first step in implementing an ESG strategy, and the next step is ensuring that the mission is strongly tied to sustainability goals. In Investec’s research, competing strategic priorities is identified as one of the biggest barriers to ESG adoption. But if company purpose dictates strategy, it should prevent this kind of clash.
Linking sustainability goals with company purpose will make it easier for employees and customers to buy into ESG. Investec’s research reveals that the vast majority of businesses say that their ESG principles are aligned with engaging employees at all levels.
For Ian Webb, CFO of schoolwear company Banner, tying sustainability goals to its mission of giving every child a chance to shine has galvanised employees. “As an organisation, it says this is what school uniform is about, but it’s also a service delivery and a sustainability message,” he says. “It is helpful for our culture, and it helps with recruitment and retention.”
Incorporating ESG and sustainability goals into the company mission will also help to increase transparency and satisfaction for employees.1 A Deloitte study, for instance, has revealed that 39 per cent of Gen Z workers have turned down employers that do not align with their values.2
To attract and retain employees, businesses must demonstrate how they will be able to influence and shape sustainability policy. One way to do this is through education on ESG and company purpose. Nearly half of businesses in the Investec research (47 per cent) that have an ESG strategy in place say that internal training and education have had the most significant impact on the strategy’s success.
James Amar explains that when the company formulated its three-year strategy, a critical element was its CSR programme, Doing Business Better (DBB). And employee education on the programme was essential. “We conducted several workshops as part of our strategy process, and DBB was covered over and over again — from product packaging and customer interactions to IT solutions,” he says. “People now think about it day to day. When it comes to overall business decision-making, it is front and centre.”
A sustainable business speaks a different language
Concepción Galdon, vice-dean for business with purpose at IE Business School, explains that when you move from treating ESG as a box-ticking exercise to incorporating it into your wider company mission, there is a marked change in how the business operates.
“It becomes the core of what you do,” she says. “It needs to be built into supply chain management, into product and service design. It needs to be built into hiring and promotion policies. The activity changes. It's a different language that we're speaking.”
