Why ESG?

Profit with purpose.

Businesses have spent years making profit at all costs, legally of course, with businesses embracing low-cost materials and production to maximise margins and provide the best returns to shareholders. This led to business behaviours like off-shoring and foreign manufacturing and contributed to the global economy shift we know today.

Over the past few years, there has been a strong focus on a new concept changing business behaviour. Environmental Social Governance (ESG) is a concept that is being embraced by Governments around the world in this macro-economic push to do the right thing by the planet, people and stakeholders of the Company. Over the past few years, there has been a change in business behaviour accordingly. Commonly coined as sustainability and social justice, the push to ESG is shifting business to business (B2B) and business to consumer (B2C) behaviour. You need to be aware of how behaviour is shifting or run the risk of missing the ESG train.  

One of the common misconceptions is that ESG obligations are one of big business and Governments, and while that is true from a regulatory perspective, the ESG framework is imposing on big business to ensure their supply chain is focusing on sustainability and social justice as part of their own ESG position. If you are a supplier to a Government Agency or large business (both private companies and listed) that entity will consider your ESG position when deciding if you are the right provider for them.   

Further to the regulatory and the B2B supply chain implications of ESG, consumers are now changing their view of what they buy at the retail front. For many years now we have chosen Australian made goods over foreign produced goods to help support our local economy, and now more than ever, the concepts of sustainable and ethical production are being made aware to us as consumers and influencing our retail purchasing decisions.

Investor decision making has also changed as a result of ESG awareness. ESG considerations are finding their way into investment policy, due diligence activities and bank lending. Incorporating the concepts of sustainability and social justice into the modern corporate value model mindset of businesses, consumers and ultimately investors means ESG is a critical component of profit and value generation.

In a 2022 study conducted by Capital Group, nearly two-thirds (63%) of global investors prefer active funds to integrate ESG in the mix, whereas within the Asia Pacific region only 52% expect the same.   

So…are you too late. In my opinion, no, this shift has started and still has a long way to go, especially in Australia where we are behind the rest of the global economy. The right question is how can we as business owners and leaders, ensure that our organisations are resilient to the movement, and then can we embrace the focus on ESG as a competitive advantage.

Perhaps start by asking the following questions: 

1. Will your customers expect you are sustainable and ethical in your supply? 
2. Are you large enough to be on the regulatory radar? 
3. Have you considered environmental sustainability and ethical service and production as part of your strategy?  
4. Are the leaders in your business aware of this shift and the responsibility you have in the macro change? 
5. Do your business systems support ethical and sustainable supply of goods and services? 
6. Do you know what your carbon footprint is?  
7. Do you have unethical suppliers or labour as part of your business?  
8. Could ESG give you a competitive advantage? 

While this is not an exhaustive list of points to consider, it is a place to start your ESG journey.   

Though ESG is a relatively new concept, the level of embrace by Governments around the world, large and influential corporates and the expectation of consumers means the concept of sustainable and ethical provision of goods and services is not going anywhere and we have a great opportunity to invest in a business model that generates sustainable and ethical businesses that generate profit with purpose. 

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.