ESG and Sustainability: Activism or Business Value Enabling?
Peter Walsh
February 17, 2023
ESG and Sustainability
In 1987 the concept of sustainable development was developed by the UN Brundtland Commission. It defined sustainability as meeting the needs of the present without compromising the ability of future generations to meet their own needs. ESG certainly plays a role in promoting sustainability, as it incentivizes organizations to better understand and manage environmental and social risk. Well run companies are an important component of a sustainable world. But they are just a component of the broader sustainable development agenda.In 2004 UN Global Compact program issued the report Who Cares Wins, Connecting Financial Markets to a Changing World. Recommendations by the financial industry to better integrate environmental, social and governance issues in analysis, asset management and securities brokerage . The report recognized the complexity and diversity of issues involved and sought to provide industry with better guidance on ways to evaluate and manage investment risk. This is the basic premise of ESG. It is not an ethical, moral or political code, it’s an investment management tool designed to protect and enhance business value.
So why do some argue that addressing ESG is contrary to fiduciary duty? We can leave it to the accounting, legal and political professions to argue over that, but it is a red herring – effective Sustainability and ESG management is a powerful tool for optimizing business outcomes.
If companies approach this as a compliance obligation, just another box ticking exercise, they will certainly be burdened with a resource intensive requirement to generate copious amounts of data purely for the benefit of external stakeholders. However, if the data is seen as an asset that can be used to transform and optimize operations, then there is the opportunity for genuine value creation. Visionary companies recognize the potential to use their ESG and sustainability data to drive performance improvement and to create business opportunity. Of course, companies that are managing EHS effectively already have a head start, as this underpins a lot of the sustainability and ESG data requirements. Here is how one company used sustainability metrics to drive efficiency.
Business Value
The key aspects to address most sustainability and ESG programs comprise energy use, water stewardship, air emissions, (especially GHG emissions), waste management/recycling, chemical and hazardous substance management, health and safety, community/stakeholder engagement, and supply chain performance. All these aspects have a direct and tangible impact on the efficiency and profitability of a company. Effective management of these aspects contributes to the proper management of the company. Well-designed sustainability and ESG programs are making operational plants safer, more productive, more resource efficient, and help attract and retain talented staff.It’s no wonder there is a strong proven correlation between sustainability performance and financial profitability. Sustainable companies are profitable companies.
The investment required to achieve this is growing. The focus on ESG as a management framework has driven a tremendous demand for data. Legislation around the world, along with a proliferation in reporting standards, and ratings agencies, result in companies having to collect and disclose an unprecedented volume of data. This data needs to be investment-grade, in other words relevant, timely, accurate and audited.
This has implications across the organization. Data is required from multiple function and sources. Multiple competencies are required to ensure data relevance and accuracy, and to enable timely delivery. A range of internal and value chain stakeholders need to be engaged to enable a workflow that underpins program success. This cannot be achieved through siloed structure, a patchwork of systems, or legacy technology. It can only be achieved through the implementation of an integrated enterprise technology platform.
Integrated Enterprise Platform
An integrated enterprise technology platform must be embedded in operations. This is not a top-down corporate management tool that provides executives with corporate dashboards (although it does do that), but rather a site-based tool that enables front-line workers to do their jobs more efficiently and safely. This will ensure the platform is adopted and supported by all levels of the organization, providing value to everyone. Recent technology developments have facilitated data collection, such as using embedded AI to ensure data quality, and automate collection capture.Once an effective capability is in place, management can gain insight from current practices, and identify improvement opportunities. An integrated enterprise platform will provide a single consistent view across the organization, provide benchmarks, identify problems or inefficiencies, and highlight best practice. It will provide tools to evaluate performance, and to insights to anticipate and manage risks. This allows managers to better engage employees in meaningful ways, understand what is happening on the shop floor, and improve business opportunity profitability.
No company in the world is exempt from sustainability or ESG reporting and disclosure requirements. If it’s not legally required, then suppliers, investors, clients, NGOs, and even employees will be asking to see performance data, and using it to evaluate the company. Failure to understand and report performance is a tremendous risk, allowing external parties to make their own judgements. Aside from the operational benefits noted above, sustainability and ESG reporting is an essential part of risk management, protecting reputation, brand value, and stakeholder buy-in. Disclosure through reporting standards such as the CDP, GRI and SASB is essential for the demonstration of Sustainability and ESG performance. Such a platform will stream-line and automate the process of disclosing data to a variety of stakeholders, in all the different formats they require.
You don’t need to be a political activist to get value from sustainability and ESG programs. If you have the right technology platform, they deliver real business value.
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About the Author
Peter Walsh
Benchmark Gensuite
Peter is Director of Business Development at Benchmark Gensuite.
Peter is an EH&S and Sustainability professional with 25 years’ experience across a diverse range of geographies and roles. His expertise encompasses the full range of EH&S and Sustainability aspects, including socio-economic planning,
environmental management, and corporate sustainability performance. He has developed specialist expertise in the use of technology to drive operational excellence and resource efficiency and has implemented data and process management systems for
numerous global clients. Peter has worked for a range of clients across Australia and Europe, in the industrial, manufacturing, pharmaceutical, resource and consumer goods sectors. His professional focus is to help companies use EH&S and Sustainability
technology to drive improved business performance.