The ESG ‘Square of Pressure’: The Four Stakeholders Putting the Squeeze on Companies
Companies are facing increasing pressure from four key stakeholders to deliver their ESG strategy: investors, regulators, customers, and employees. As this pressure builds from all four sides, it is creating a challenging commercial environment for Boards, CEOs, CFOs, and Chief Sustainability Officers.
What are these challenges?
Investors are increasingly demanding that companies adopt ESG practices. A recent survey by BlackRock found that 85% of investors believe that ESG factors are important in their investment decisions. Investors are concerned about the ESG risks that companies face, such as climate change, labour rights, and data privacy. They are also looking for companies that are well-positioned to benefit from the transition to a more sustainable economy.
Regulators are also increasing their focus on ESG. In recent years, there has been a proliferation of new ESG regulations around the world. For example, the European Union has introduced a new Sustainable Finance Disclosure Regulation (SFDR), which requires asset managers and financial institutions to disclose their ESG policies and practices.
Regulators here in Australia are taking a number of steps to promote ESG reporting and compliance, with the Australian Treasury currently developing a mandatory climate reporting framework for large companies. ASIC and APRA have issued a number of guidance notes and publications on ESG issues, and the ACCC has also issued guidance as well as fines for greenwashing.
Customers are also becoming more demanding on ESG. A recent survey by Nielsen found that 66% of global consumers are willing to pay more for products and services from companies that are committed to sustainability. In fact, customers are also more likely to do business with companies that share their values on ESG issues.
Employees are putting further pressure on companies to adopt ESG practices. A recent survey by Deloitte found that 70% of millennials would not accept a job at a company that does not align with their values. Employees are also more likely to stay with a company that is committed to ESG.
You can see why the increasing pressure from these four stakeholders is creating a challenging environment for businesses. On the one hand, companies need to adopt ESG practices in order to meet the demands of their investors, regulators, customers, and employees. On the other hand, companies need to be mindful of the costs associated with implementing ESG initiatives.
How can companies manage this encompassing pressure?
Here are the key initial steps:
Start by understanding the ESG demands of your stakeholders. What are your investors, regulators, customers, and employees most concerned about? Once you understand their demands, you can start to develop a plan to address them.
Be transparent about your ESG performance. Disclose information about your ESG policies and practices to your stakeholders. This will help to build trust and credibility as you begin your journey.
Set ambitious but achievable ESG goals. Don't try to boil the ocean. Set realistic goals that you can achieve over time.
Make ESG a part of your core business strategy. ESG should not be seen as a separate initiative. Integrate it into your overall business strategy as well as the job descriptions of your employees.
Engage with your stakeholders. Talk to your investors, regulators, customers, and employees about your ESG goals and progress. This will help to ensure that you are on the right track and that you have their buy-in for your roadmap.
Conclusion:
The ESG ‘Square of Pressure’ is a reality companies are having to face up to. By following the above steps, companies can de-risk this pressure and capitalise on emerging opportunities via a sustainable business model.
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