Up until recently Environmental, Social and Governance (ESG) trends were viewed as having a ‘long shelf life’. Now, however, issues like climate change, extreme weather and biodiversity are crystallising to drive significant structural change in the corporate world.
Social issues and environmental issues are now considered to be highly relevant and financially material to the current market. Companies with high ESG scores are outperforming their competitors, attracting top talent and profiting from acting more sustainably. Organisations ignoring ESG are at risk of regulation and stakeholder intervention. Read on to find out how a clear Environmental and Social Governance policy can benefit your business.
Outperform with a high ESG rating
At a recent Moir Group event, special guest Phineas Glover, Head of ESG Research, Asia Pacific for Credit Suisse explained that ESG investment strategies tend to have lower risks and generate higher returns.
In fact, organisations with a high ESG rating outperform in a number of ways. They are more resilient, tend to have stronger systems and governance, are better at navigating disruption, prove highly adaptable during economic dislocation and understand the financial costs of long-term inaction.
A good record in ESG can be seen as an indicator of organisation health. For example, 90% of bankruptcies in the S&P 500 between 2005 and 2015 could have been avoided by screening out companies with below-average ESG score 5-years prior[1]. Shareholders have noticed the correlation and are becoming increasingly focussed on business models built around long-term sustainability and the ability to adapt to disruption.
This trend, Glover predicts, is likely to accelerate as wealth transfers to younger generations. Socially conscious Millennials and Gen Z’s will have an increasing say in financial decisions. Many want to invest responsibly and work for organisations that strongly align with their values.
“A strong ESG performance can give your organisation a competitive advantage, especially when it comes to attracting and retaining Millenials and Gen Z.”
Strong ESG attracts and retains talent
At Moir Group, we are seeing a rise in the number of talented Finance and Accounting professionals who want to work for profitable, purpose-driven organisation. “People want to be themselves at work,” believes Moir Group Director, Stephen Moir, “Issues such as empathy, humble leadership and phycological safety aren’t new, but these themes are really resonating with the current workforce.”
Research shows[2] that employers with highly satisfied employees also score 14% higher on ESG performance. Compared to their peers they tend to have lower carbon emissions, are more diverse and make a greater effort to understand employee feelings. Staff are more productive and stay longer when they feel that they are part of an organisation which conducts itself responsibly and reinforces their personal beliefs.
“A strong environmental, social and governance performance can give your organisation a competitive advantage, especially when it comes to attracting and retaining Millennials and Gen Z,” says Stephen Moir. “At Moir Group, we understand this well. Our focus on placing candidates who are strongly aligned to organisations means that we can use the edge created by a strong ESG rating, to attract top financial and accounting people.”
“People want to be themselves at work. Issues such as empathy, humble leadership and psychological safety aren’t new, but these themes are really resonating with the current workforce.”
Make yourself an ESG steward
Phineas Glover believes it is important to get on the front foot of changes in sentiment. “Many ESG themes appear to have a long shelf-life. The temptation is to approach change slowly, but ignoring the problem for too long can leave your business massively exposed,” he said at a recent Moir Group event.
The key is to become a steward for ESG and take control of the agenda. Don’t wait for customers, workers, shareholders and regulators to control it for you. Place yourself and your organisation at the very centre of the changing environment. After all, a clear position and strong track record on ESG can give you a competitive advantage. “In our experience companies that have a lot of focus on ESG, tend to be very well-led,” says Stephen Moir. “A well-led business is one of most important things people look at when considering whether to join an organisation.”
Consider your business preparedness in terms of systems, targets and practices relative to key disruption themes. Think about how well your organisation is structured to navigate sustainability. How quickly are the management team adapting to the transition? How will you demonstrate your track record on ESG and create a business model embedded in a social and environmental context?
“If you don’t take change by the hand, it will take you by the throat.” – Winston Churchill
The way forward
From energy transition, to modern slavery; supply chain disruptions and the future of food… is a complex web of ESG-related issues on the horizon for Australian businesses.
Phineas Glover believes boards should have strong alignment when dealing with these issues and have a formal process for signing-off ESG strategy every 3-4 years. “Have clear parameters of what you are comfortable with and what you are discussing. Without clarity there is a vacuum.” he says. “ESG has to be seen in context of a particular business. If you don’t contextualise for your business, someone else will and you might get outmanoeuvred by other stakeholder groups.”
The role of a CFO is especially important when it comes to ensuring ESG themes are operationalised and embedded within an organisation. Talented CFOs and other financial leaders can help organisations control risks and demonstrate ESG investment in meaningful ways.
As the future unfolds planning for and measuring true social impact will be important for giving your business an edge. “ESG is the future of business and it’s here right now,” says Stephen Moir.
Would you like help sourcing top talent aligned to your business goals?
Are you seeking a new role in a purpose-driven organisation?
Contact us for expert recruitment help.
[1] 10 reasons to care about ESG, 2019, BAML
[2] ESG as a Workforce Strategy, 2020, Marsh & McLennan Advantage
