What is the True Value of ESG?

  • James Gaskin
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Series 1 / Part 2

ESG. Some would argue one of the key areas of focus for procurement in 2024. Others would question the value of ESG and what tangible benefits a company can derive through engaging in ESG principles, behaviours and action. To understand the true value of ESG let’s start by defining what ‘value’ is. The Oxford English dictionary defines ‘value’ as:

Noun

  1. The regard that something is held to deserve; the importance, worth, or usefulness of something. “Your support is of great value”
  2. Principles or standards of behaviour; one’s judgement of what is important in life. “They internalise their parents’ rules and values”

Verb

  1. Estimate the monetary worth of. “His estate was valued at £45,000″
  2. Consider (someone or something) to be important or beneficial; have a high opinion of. “She had come to value her privacy”

If we can agree therefore that ‘value’ is linked to something being important or beneficial, we can then question what the true benefits of ESG are.

You may be surprised to know that the benefits to organisations in engaging in ESG are many and varied. Let’s look at some key organisational stakeholders to understand what makes them tick:

Employees

Generation X, Millennials & Z have grown up in a world with changing environmental exposure and pressures. As the Baby Boomer generation reaches retirement, with a huge loss of people, skills, experience and attitudes in the job market, it is apparent that the generations replacing them are more environmentally-conscious and hold different ideals. Indeed, studies have shown that the ethical principles of an organisation are one of the key considerations for the younger generation when researching roles and companies for which to apply. As organisations scramble to replace their retiring Baby Boomers, there will be a fight for talent, with candidates experiencing a greater luxury to choose their preferred organisations.

To attract and retain the best talent, organisations will need to mirror their candidate values to ensure the best talent and facilitate greater innovation to keep their company at the forefront. Tie this in with the rise of Artificial Intelligence, with machines making decisions without any ethical or moral faculties that might prevail in a human making those same choices, and we have a potentially very different job market.

Benefit 1: Organisations engaging in ESG will attract new talent at a time when candidates have greater levels of choice in the job market.

Shareholders

In a changing world, where company values and demonstrable actions are becoming more vital, shareholders will start to scrutinise and demand improved ESG credentials. As an example, a fifth of shareholders at oil giant Shell voted for a resolution at Shell’s AGM in May last year calling for the board to adopt climate targets aligned with the Paris agreement (ESG Clarity, May 2023).

This will make sustainability two-fold, a sustainable planet and a sustainable business within this framework. Organisations who do not embrace ESG will be left behind, and in the long term could suffer dire consequences.

Benefit 2: Organisations engaging in ESG will satisfy shareholders, and be an attractive proposition for potential new shareholders looking to invest, thereby improving the monetary value of the business

Investors

ESG investment funds are becoming more prevalent in the investment market, allowing organisations needing investment to gain an improved cost of finance for ESG related projects. Reducing the cost of cash improves project payback, allowing for further investment. This could become the circle of increasing returns.

Benefit 3: Organisations engaging in ESG benefit from improved cost of finance and a circle of increasing returns.

Suppliers

Suppliers will need to embrace ESG to support their clients’ strategic aims. Suppliers can play a key role in helping their clients to win lucrative contracts in 2024 and beyond; ESG requirements have increasingly become an area of focus within tender documents, particularly in the public sector for example.

In addition, suppliers embracing ESG will drive innovation for new products, where agile companies could hold the advantage. This innovation will allow for premium products and services to be developed, giving a greater return to those who can generate demand for their new products or services.

Furthermore, changes in government legislation will also drive huge opportunities to the SME sector of the economy, providing greater scope of suppliers for all organisations.

Benefit 4: Organisations engaging in ESG will work with innovative suppliers, and those that actively select suppliers with ESG principles will strengthen their tender position for key contracts.

Customers

The customers of the future are the same generation X, Millennial and Z who are already demanding action and ESG focussed products as employees. These generations expect ESG principles to be a core element of the way organisations ‘do business’. To ignore this poses huge reputational risk, leading to a possible decrease in sales and negative publicity. An example of this is the fashion brand BooHoo who face a £100 million lawsuit from investors due to anti-slavery failures in their supply chain, which wiped up to £1 billion off the organisation’s corporate value. Automotive manufacturer Volkswagen are also still suffering the repercussions nearly a decade on from the 2015 Emissions Scandal.

Coupled with legislation, organisations may be forced to change or fear becoming irrelevant to consumers, losing market share to rivals who satisfy eco-savvy customer expectations.

Benefit 5: Organisations engaging in ESG are relevant and attractive to an increasingly eco-savvy customer base.

How To ‘Sell’ ESG Into Your Organisation

So if we’re clear that there are tangible benefits of ESG that demonstrate the value it can bring to an organisation, how can ESG be ‘sold’ into the company to drive change? Let’s look at the key elements from various perspectives:

Procurement and the CPO: Engaging in ESG will allow us to understand, manage and mitigate more risk in our supply chain, allowing for a more robust and thus cost-effective supply chain, which will allow us to manage and improve our Scope 1, 2 & 3 emissions.

Finance and the CFO: Engaging in ESG will allow us to be attractive to more investors at a lower cost, giving for a greater return on investment and allowing for greater shareholder and stakeholder returns.

Marketing and the CMO: Engaging in ESG will have greater benefits to our customers and stakeholders, generating greater value across multiple criteria; a PR dream.

Sales: Engaging in ESG will allow us the opportunity to design new products that can be sold at a premium and differentiate us in the market, allowing for greater value to be generated.

Managing Director and the Board: By engaging in ESG we can and will derive value through attracting lower investment rates, attract and retain more customers, and we will entice the best talent to our organisation. And if we do this before our competition, then we will derive the benefits from being ‘first in the market’.

Summary

Now is the time to act on ESG. We at Barkers are passionate and experienced in improving business and supply chain performance with a specialism in ESG supply chain strategy. Please get in touch if you would like an obligation-free discussion about how we can develop this value together.

James Gaskin B&W (1)

James Gaskin

James possesses the ability to inspire people; whilst still being able to adapt his approach in order to improve business performance. With particular experience of working inside complex organisational structures, he is highly motivated and inquisitive, whilst thriving on new challenges. He is keen to enhance his own and team members’ development and has a MSc in Procurement and Supply Chain, gaining a distinction in his dissertation which explored the value of sustainable procurement.

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Author: James Gaskin