Corporate leaders increasingly consider the interests of all of the company’s stakeholders—employees, customers, suppliers, governments, and communities.
“If you instill the values of a healthy planet, people, and culture. your company will get positive recognition, and this will trigger awards. Your company can be recognized as a trusted, admired, sustainably managed company; receive a 100% rating for corporate and LGBTQ equality; and be identified as a best large employer.”*
Environment, social, and governance (ESG) initiatives can start a “virtuous cycle of benefits,” while failing to pursue ESG goals may threaten a company’s future.
But making it pay still matters. CEOs who pursue ESG initiatives face high hurdles and difficult decisions. Investors can be wary of massive investments in ESG projects, and customers may not be willing to pay the extra costs associated with ESG.
“We always need to find the profit element to go with the purpose. Investors have told us that the targets are great but asked how much they’re going to cost the company.”
And the war in Ukraine has created added pressure to slow the pace of ESG adoption. Companies are getting questions as to whether they can afford ESG when they have energy security and food supply/quality problems that frequently are higher on their agenda.
Addressing the “E’’ in ESG
Environmental goals are a top priority for industrial firms that must acknowledge their impact on the natural world.
“The ‘E’ is existential for a company like ours. We have energy-intensive inputs and outputs in our manufacturing and, we’re one of the largest plastic waste producers in the world.”
It usually takes a specific strategy to keep environmental goals in focus. For example, one large MNC has established three goals focused on climate mitigation, stopping waste, and “closing the loop” so that all of their products will be reusable or recyclable.
Pursuing environmental goals can also be a boon to the bottom line. Sustainability has become part of business models, often leading to increase efficiencies, lower costs, improved margins, and business opportunities. Decarbonization, for example, has contributed to profit growth in technologies that firms have developed and licensed. Finding the profit angle can be key to making ESG sustainable.
Finding the profit angle is key to making ESG sustainable: “We moved from energy-inefficient light sources to LEDs which boosted margins.”
However, the global proliferation of environmental regulations complicates compliance and slows the pace of change. The cost and complexity of regulatory compliance will become an added burden. Asia CEOs want to see environmental regulations that set consistent standards. A set price for carbon helps when making long-term investments.
“S” Is for Stakeholders
Focusing on social issues can benefit stakeholders—when it meaningfully changes people’s lives for the better. One company was instrumental in returning US$25 million in fees to over 2,000 supply chain workers who were victims of forced labor.
Many social initiatives are designed to encourage greater diversity. Several companies have partnered with NGOs to help female leaders and talent find better opportunities, as well as with the UN to get one million female students into STEM education.
Getting employees involved is an important objective of ESG social initiatives, which also helps to hire committed employees:
“We’ve changed our people policies to align with our philosophy. We have instituted 16-week maternity and paternity leave and paid time off for volunteering. We’re working with our employees to meet ours and their social goals.”
Social initiatives are not limited to the company’s own workforce—and can have an impact up and down the value chain. Companies have used their purchasing power to encourage positive ESG behavior and identify diverse, value-added suppliers.
“G” Gets it Done
Governance wraps all the ESG initiatives together to reach corporate objectives. Setting achievable metrics is often the first step.
“We have eight metrics covering gender equality and various environmental and safety indicators. The resulting ESG score is tied to our leadership performance award and senior executive pay. Middle management and junior leaders are assessed based on their ESG impact.”
Senior leaders must be committed to ESG initiatives for them to succeed. They should be at the core of the company, not just the periphery. Increasingly, executives are setting goals, putting roadmaps in place, and making action plans.
Governance requires participation from the shop floor to the boardroom, a “bottom-up” approach. Motivated employees proactively find ideas that go far beyond their usual remits.
To be most effective, ESG initiatives should be integral to corporate strategies and be given time to develop. A three-year plan can act as a roadmap and help grow awareness and effectiveness.
“If you start talking about ESG initiatives as part of your three-year plan—top down and bottom up—awareness grows. Top management needs to make a conscious effort, and, in time, it sinks in.”
*Quotes from regional CEOs of MNCs in Asia