ESG integration as a driver for value creation
With growing regulatory and market demands, integrating ESG into corporate strategy and decisions is becoming a must. However, if it is only driven by compliance as the result of new mandatory legislative requirements, this could lead to increased bureaucracy and administrative costs. On the other hand, embedding ESG into every element of the business will drive growth, create new opportunities and make your company future-proof.
How can sustainability create value for both the company and its stakeholders? Here are four key reasons:
1. Access to capital:
Companies with better ESG performances have easier access to finance. Private investors are increasingly looking for sustainable organisations that will perform better over time and have a higher valuation than companies not taking ESG into account.
In addition, sustainable companies receive better conditions for loans through beneficial interest rates, while banks and investors are becoming more cautious about investing in unsustainable practices.
Finally, investments can be supported by green/social public funds, both at European and national level (e.g., the Flemish agency VLAIO, which provides financial support for sustainable companies).
2. Threats & opportunities:
Companies are increasingly recognising sustainability as both a risk and an opportunity. Negative societal or environmental impacts can lead to reputational damage and financial losses, underscoring the importance of responsible practices. On the contrary, sustainable products and services increase the attractiveness of a company’s offerings and can be sold as prime products, leading to higher margins.
Moreover, as highlighted by the World Economic Forum's Long-Term Risk Outlook, ESG-related risks are becoming more prevalent, needing proactive measures to mitigate future disruptions (e.g., physical risks linked to climate change, like more frequent floods or drought, that can disrupt the supply chain).
3. Upcoming policies & legislations
The regulatory landscape has undergone significant shifts in recent years, with national and European authorities implementing laws that profoundly impact companies’ sustainability agendas. Notably, in 2020 the European Commission adopted the EU Green Deal, a package of over 150 policy initiatives designed to integrate sustainable practices across various sectors.
In addition, the EU institutions enhanced transparency by adopting the EU Corporate Sustainability Reporting Directive (CSRD), which creates mandatory ESG reporting requirements for a large number of companies, including large corporations and SMEs.
Additionally, initiatives such as the Sustainable Finance Package, the Fit for 55 and Carbon Border Adjustment Mechanism (CBAM) aim to promote sustainable practices and align industries with carbon reduction goals. All these new initiatives are gradually pushing organisations towards more sustainable practices.
4. Pressure from stakeholders (such as clients, governments and employees)
Clients prefer sustainable companies as partners. Recent EU policies like, for instance, the Corporate Sustainability Reporting Directive create a trickle-down effect, forcing organisations to involve their value chain in their sustainability efforts. This means that larger companies will prefer to do business with companies that have a higher degree of ESG maturity.
In addition, governments are increasingly including sustainability in their selection process for public tenders, making it a crucial factor for organisations dependent on public contracts.
Finally, a lot of companies struggle with the war for talent. Having a sustainable strategy is often a requirement for potential future employees, especially Generation Z, and is proven to result in higher retention and satisfaction rates.
Overall, the survey results suggest that companies are taking a more proactive approach to sustainability, recognising that such efforts can create long-term value for both the company and its stakeholders. Companies are realising the importance of finding the right balance between people, planet and profit, moving from short-term perspectives to long-term objectives. Besides the compliancy risks, the transition to sustainability comes with a lot of business opportunities and can foster economic growth.
