Profit-driven businesses have traditionally had a reputation for caring about little else than their bottom line. However, growing awareness of social and environmental issues has nurtured a generation that expects greater responsibility from brands.
Consequently, the reputational risks for companies that treat customers, staff and the planet badly are higher than ever, while the potential rewards for businesses able to build mutually supportive relationships with all their stakeholders have increased. Though sustainable investing has been on the rise for some time, the pandemic has put a spotlight on companies’ wider impacts on communities and the environment.
Millennials are particularly focused on these issues, with 83% telling a recent study by 5WPR they want companies to align with their personal values. These, and other findings, illuminate the striking realization many companies are coming to that environmental, social and governance (ESG) issues are about more than ticking boxes and appeasing stakeholders. In the most extreme circumstances, of which a pandemic is one, it can be the difference between survival and extinction.
High performers are more advanced on ESG because they understand the material impacts on their business and therefore provide the right detail, where it matters, to illustrate to investors the steps they are taking. Those companies who just pay lip service to ESG are starting to fall behind.
The world is going through a transition, and there is evidence that businesses with a measurable negative impact, either societally through creating poor health or when it comes to carbon impact are having a tougher period.
While companies are still predominantly assessed on their financial value, investors are increasingly paying attention to how that value is created and also to stakeholder management. This has been highlighted by the pandemic and the decision by many organisations to return furlough money having realized they have managed better than they were originally expecting.
Three key pillars
Going forward, investors will assess companies across three key pillars of sustainability. Financial sustainability is the traditional investment metric, but it is increasingly underpinned by the second pillar: internal sustainability. This looks at how a business operates, makes efficient use of its resources and interacts with stakeholders.
The final pillar is impact, examining how a company’s products and services contribute directly and positively to a more sustainable future.
Whether it is equity funding, debt funding or grant funding, ESG is moving rapidly up the funder’s agenda and can’t be ignored.
Infintec recognizes this and works with companies who also understand this. Our processes help our clients’ focus on the detail and create a balanced score card of objectives, and enable them to present their approach to investors.