Environmental, Social, and Governance (ESG) goals are becoming increasingly important for modern business owners. Setting and achieving aggressive milestones in this area is good not only for the global socioeconomic landscape, but also for the individual businesses pursuing them.
Why is this the case? And what can you do to set and achieve better ESG goals?
The Basics of ESG
Let’s start by digging into what ESG actually means. ESG goals can be divided into three main categories. according to DXPE.
· Environmental. Environmental goals are all about safeguarding the environment, which typically means reducing carbon emissions in an effort to fight climate change, improving energy efficiency, reducing pollution, and protecting certain ecosystems.
· Social. Social goals are about improving social dynamics inside and outside the business. They typically focus on fair treatment, as well as good relationships with employees, suppliers, customers, and entire communities.
· Governance. Governance goals relate to how the company is managed and operated. They typically focus on sustainability in leadership, executive pay, and shareholder rights, and may include emphasis on better audits and internal controls.
Why Are ESG Goals So Important for Modern Businesses?
Why are these goals so important for modern businesses to set and follow?
First, understand that goals are a publicly accessible and motivating force. The very act of having a goal in place shows consumers, investors, and other important people that your business is taking ESG matters seriously. If you take your goals seriously, your business will be more incentivized to make actionable changes to achieve those goals. Setting a specific target is much more valuable than, say, blandly and generically committing to “better environmental practices.”
If and when your business does take action to improve its ESG standing, you’ll see the following benefits:
· Appealing to consumers. Increasingly, consumers care about environmental, social, and governance goals. Recent data suggests that 76 percent of consumers would cease relations with companies that treat employees, communities, and/or the environment poorly – and we know that consumers will preferentially choose more ethical or more sustainable options, given all other factors are equal. Setting and achieving ESG goals can be a major competitive advantage, entitling you to greater market share and helping you generate more revenue.
· Appealing to investors. ESG goals are also valuable for attracting and retaining investors. Major investment groups and individual, amateur investors alike care about the ethics of the businesses they invest in. This is likely only going to increase in the future. If you want to keep reaping the benefits of ongoing investment, adhering to ESG criteria is going to become even more important.
· Reducing costs. Some companies are reluctant to set ESG goals because they’re afraid of the expenses, but in reality, pursuing ambitious ESG goals can actually help you reduce costs. Making an effort to keep your business more energy efficient, switching to sustainable fuel sources, and building better relationships with employees can reduce utility costs, reduce turnover, and ultimately allow your business to run more profitably – and these are just a few examples of the ways ESG can save you money.
· Staying ahead of the legal curve. Increasingly, governments all over the world are introducing and enforcing new laws to keep businesses compliant with changing ethical perspectives. Ambitiously reshaping your business to be more ethical and sustainable is a way of staying ahead of the legal curve, so you can work proactively instead of reactively.
· Protecting the environment. If you personally care about the environment, the “E” in ESG is especially appealing as a target. Reducing your company’s pollution and emissions can help preserve the ecosystems you love and help guarantee that your children and grandchildren will have a thriving, healthy world to grow up in.
· Improving relationships. The “S” in ESG is all about improving relationships with employees, partners, and other people critical for the success of your business. Any competent business leader can tell you how valuable this is, even if you throw out everything else about ESG. If you want your business to be successful, you need good, happy people working for and with it.
· Boosting long-term sustainability. The three facets of ESG are all focused on long-term sustainability. In other words, they have the potential to ensure that your business can continue operations well into the future, possibly for decades, or even centuries. If you want your business to last, these goals are a practical prerequisite.
· Remaining competitive. Currently, 86 percent of S&P 500 companies publish annual sustainability reports, and an increasing number of businesses are focusing aggressively on ESG compliance (source). In other words, unless you also adopt an ambitious vision for ESG development, you may not be able to remain competitive indefinitely.
Setting and pursuing ESG goals isn’t about adhering to some arbitrary bureaucratic standard. It’s about allowing your business to evolve in ways that encourage it to operate both ethically and sustainably. Ultimately, that’s going to put your business in a much stronger position to succeed – and potentially help you boost profitability even in the short-term.
Last Updated: December 29, 2023