Remembering the S and G in ESG strategic planning

With recent focus on geopolitical tensions and macroeconomic uncertainty, ESG news has cooled in recent months. Still, progress is being made, and companies and investors continue to view sustainability initiatives positively. According to KPMG, US CEOs expect to see significant returns from investing in sustainability within the next five years. Moreover, investors continue to prioritise investments which have strong sustainability strategies. 

But what about social and governance initiatives? With so much focus on the environmental aspect of ESG, social and governance elements are often seen as afterthoughts in ESG compliance and planning.

Some argue that too much emphasis has been placed on environmental strategies and not enough on social and governance, while others claim that social and governance strategies are easier to implement and hence further advanced than environmental policies. There may be truth in both lines of thinking; however, companies would be foolish to disregard their social and governance strategies in favour of focusing solely on sustainability planning.

Social strategy planning pairs well with environmental strategy planning, as it focuses on the effects of a company’s operations on all stakeholders, including employees of the business and its supply chain, communities effected by a company’s operations, and even customers.

Studies have confirmed that teams with a more equal gender distribution perform better, and those with more diverse backgrounds are better at problem solving and innovation. Reviewing how a company’s products or services affect end users can improve offerings, and requiring fair treatment throughout the value chain will enable a company to not only gain greater customer trust but also to ensure stronger supply chains.

Governance planning covers effective and efficient internal procedures and controls. Nearly all companies already have enough of a governance strategy in place to comply with local laws and regulations, but companies must do more to meet the needs of all stakeholders and make decisions most effectively. A strong governance strategy ensures a company can effectively execute its social and environmental strategies, creating a robust, well-rounded ESG strategy.

The benefits of a full ESG strategy can be huge. McKinsey estimates that a well-executed ESG strategy can improve operating profits by as much as 60%, and a comprehensive ESG strategy makes for more appealing equity investments and M&A targets.

So perhaps it is worth having another look at your company’s S and G.