How To Choose ESG Initiatives That Align With Your Business

A range of different studies carried out in recent years agree that issuers face and will continue to face growing pressure from the asset management community to engage in sustainability-related transitions and communicate their ESG objectives. PwC found that asset managers around the world predict their ESG-related assets under management (AuM) will reach US$33.9 trillion (€31.8 trillion) by 2026. This is a leap from 2021’s figure of US$18.4 trillion (€17.3 trillion).

European-domiciled assets could hit €9 trillion alone, with ESG funds accounting for between 46% and 56% of total European Mutual Fund assets. This is a rise from 37% as it stood at the end of 2021. 

Euronext predictions for ESG growth

In addition, Euronext predicts the ESG debt market will rebound after a tough year in which interest rates around the world affected the price of bonds, including those related to ESG. This could result in an upturn in ESG bond issuances and a return to a US$1 billion (€944 million)-plus market valuation. 

But just communicating about your general sustainability intentions is not enough. Your organisation has to concentrate its ESG efforts on the areas in which it can make tangible positive impacts or reduce major negative effects in terms of the environment, social issues or corporate governance. This means choosing ESG initiatives that best fit your business activity. It also involves consideration of the current and upcoming regulatory demands in terms of quantitative and qualitative ESG reporting. 

This article explores various aspects to take into consideration while setting your sustainability-related objectives. 

How do well-defined and adapted ESG initiatives attract investors?

For issuers, there are a number of ways in which you can attract investors thanks to well-chosen and clearly defined ESG initiatives. Here are some examples: 

How to choose the most relevant ESG initiatives for your business

1. Identify relevant ESG issues 

ESG is not a one-size-fits-all concept. Each company faces a specific set of environmental and social risks and opportunities (“material issues”) which need to be identified and discussed within your ecosystems (“stakeholders”). 

Your business should focus on the ESG issues on which it can make the most impact, as well as on those aspects where there is a real need for change. Targeting ESG initiatives in areas where there is no need might make for pleasing metrics, but serious, responsible investors will be able to see beneath the facade. 

For example, a drinks company that uses a lot of plastic bottles in its distribution process would create real ESG value by reducing the use of primary plastics and looking for alternative ways of distributing drinks. 

Examine your organisation’s sector for the most pressing ESG issues, consult stakeholders, think about your operations and supply chain, and consider how you can make a real impact on people, the planet and prosperity.

One of the most important stakeholders is the government and regulatory bodies of each country in terms of the legislation it enacts. It might require you to consider specific environmental or social issues you must manage in order to meet the growing regulatory demands within the EU. This could include reducing your carbon footprint or creating a gender equality matrix, for example. The legislation might affect the areas in which you concentrate your efforts, as well as how you target the issues and how you report on your progress towards solving them. 

2. Prioritise ESG issues

Although 78% of sustainability professionals told the Morningstar Sustainalytics Corporate ESG Survey Report 2022 that their company had identified its relevant ESG issues, just 64% said it had a formalised strategy in place, and only 61% had set KPIs to monitor the mitigation of these issues. 

Once you have established the list of priority issues that are most relevant to your company and your industry, you can define your mission and purpose and align your sustainability strategy with these priorities. 

3. Define the purpose of the company aligned with material issues

The exact mix of ESG initiatives that your business implements will be different from most other organisations because each business has a unique vision. Before you can choose these initiatives with any certainty, you have to examine every aspect of your business, such as extra-financial risks and opportunities.

Ask yourself questions about what your business and its stakeholders stand for and where you want to go as an organisation. This will help you align the business with the initiatives that work best for it.  

Consider the core values of the organisation and the beliefs that you prioritise and which make up your company culture. Think about your business goals and strategies and how ESG feeds into them.

4. Develop and implement ESG initiatives

Now you can create initiatives that will help you make progress on impacting the issues that are most pertinent to your business. Be systematic about it and tackle the highest priority issues first, working down to the lowest priority eventually. 

Take each issue and consult with team members, management and other stakeholders to plan robust initiatives that help you work on the challenges at play. Be transparent about your projects and your goals for them. Encourage buy-in from employees and management alike to help them live those initiatives within their everyday work and help you to achieve your overarching ESG aims. 

When everyone in the organisation understands the aims and the means for reaching those aims, you can all work together to implement your ESG strategy. 

Examples of ESG initiatives

Climate change

Energy companies are attuned to the challenges of tackling climate change, as much of the emissions that are causing the change in global temperatures come from our consumption of fossil fuels for energy. French firm EDF, for example, is investing in low-carbon technologies like battery storage, small modular reactors and tidal energy as part of its ESG efforts.

Water conservation

Soft drink producers use a large amount of water in creating their products and, as such, should be concerned with the effects that increased consumption and climate change have on the ability of many people to access safe water. 

Several start-ups are currently proposing solutions for clean water production and distribution, and a soft drinks giant could invest in them to support them and integrate clean business solutions into their processes.

Reduced energy consumption

As a major confectionery manufacturer, Nestle relies on vast amounts of energy to power its factories, fleets and supply chain. The company aims to use 100% renewable energy across its global sites by 2025 through initiatives, such as using biomass boilers, changing to LED lighting and phasing out the use of hydrofluorocarbons (HFCs) as a refrigerant.

Diversity

The Financial Times ranked Dutch travel firm Booking.com as the leading European company with regard to diversity and inclusion. Its initiatives include running the Women in Tech mentoring programme to help women develop their businesses in a traditionally male-orientated field. 

FAQs

What are the ways that ESG creates value?

ESG initiatives can create value for companies in several ways. By addressing environmental, social and governance issues, companies can:

• Enhance their reputation and brand value
• Improve relationships with stakeholders, including customers, employees and investors
• Manage risks and reduce costs associated with environmental and social issues
• Boost innovation and efficiency by incorporating ESG considerations into business operations and strategy
• Increase access to capital by attracting socially responsible investors who prioritise ESG issues

How can boards take action in initiating ESG?

Boards can take several actions to initiate ESG within a company, including:

• Setting clear ESG goals and objectives
• Creating an ESG committee or task force to oversee ESG initiatives
• Incorporating ESG considerations into the company’s overall strategy and decision-making processes
• Committing to assessing and managing ESG-related risks and opportunities
• Engaging with stakeholders to understand their ESG concerns and priorities
• Encouraging transparency and accountability in ESG reporting and disclosure

What are ESG initiatives?

ESG initiatives refer to the actions that companies take to address the environmental, social, and governance aspects of their business operations. These initiatives are becoming increasingly important for companies as they seek to meet the expectations of stakeholders, including customers, investors, employees and regulators.

Why are ESG initiatives important for companies?

ESG initiatives are important for companies because they can help to build a positive reputation with stakeholders, enhance brand value, increase customer loyalty, improve employee engagement, manage risks and improve long-term financial performance.

How can companies choose ESG initiatives that align with their values and goals?

Companies can choose ESG initiatives that align with their values and goals by understanding their business, identifying relevant ESG issues, prioritising initiatives based on impact and developing and implementing initiatives in a systematic and transparent way.

Can ESG initiatives improve a company’s financial performance?

Yes, research suggests that companies that prioritise ESG issues perform better financially in the long term due to various factors, such as improved operational efficiency, reduced costs and increased customer loyalty.