Finding their own authentic true north on ESG can help companies navigate society’s expectations and investors’ demands.

By

Peter Gassmann and Will Jackson-Moore, Strategy + Business

ESG has been building as a key topic for nearly 20 years, at least since the topic was mentioned in a 2006 United Nations report on principles of responsible investment. Attention has intensified as evidence of climate change has increased. The growing attention and urgency not only raise concerns about the E in ESG but also add to interest in whether companies are being responsible social citizens and applying governance practices that conform with both the letter and the spirit of government regulations.

The need to focus on ESG will only mount. As more governments have committed to net-zero targets, regulators are stepping up pressure for businesses to be more sustainable. Investors likewise say they prefer to put money into businesses with a strong ESG profile (even if investors aren’t yet willing to sacrifice much return to do so). Increasingly, customers, employees, and potential employees are evaluating companies on ESG criteria, urged on by activists and other social forces.

As time has passed, companies have realized that an emphasis on ESG issues isn’t just an excuse for scolding them. Widespread interest in the environment and social and governance concerns also opens up enormous opportunities. If your company invented a polymer that could be used in all plastic containers for consumer products, which would greatly simplify recycling, then you could win in a massive market. You’d also get a reputation as a superb corporate citizen, which would help not only with customers and investors but with the talent you want to attract, and you’d garner favourable attention from government regulators.

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