Companies see ESG as opportunity to rise above competitors

Conversations around environmental, social, and governance issues (ESG) are shifting from compliance and corporate responsibility to competitiveness as businesses increasingly see ESG as an opportunity to stand out to investors, customers, and talent.

At a recent panel discussion on ESG metrics during Davos Agenda 2022, a virtual event organised by the World Economic Forum, CEOs said a focus on ESG has helped companies become more attractive to investors, customers, and prospective employees. For Philips, the home appliance and health technology company, implementing ESG and a circular economy model led to increased customer loyalty.

A crucial first step to embracing ESG is to track and report the right metrics, the panellists said. And there has been positive development in the past year to converge the many ESG reporting frameworks in the market.

Last year, one major announcement was the merger of the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC) to create the Value Reporting Foundation in the middle of last year.

In December during COP26, the UN summit on climate change, the IFRS Foundation announced the creation of an International Sustainability Standards Board (ISSB) that was created to provide a uniform set of rules for reporting on ESG.

Getting started on the ESG journey begins with a commitment to measure and use the data to meet sustainability targets, said panellist Julie Sweet, chair and CEO of Accenture. She explained that the shift from merely reporting ESG metrics to using that data to measure performance is key to making sustainability work.

“This is about a decision, this is not rocket science,” she said, adding that it took Accenture 15 months to progress from reporting on three sustainability frameworks to six frameworks and to get the data needed and assurance on its reports.

Gaining customer loyalty

After Philips adopted the circular economy model to reduce waste and increase the use of recyclable materials in its supply chain, it realised that the more sustainable model didn’t increase cost or reduce profitability, said panellist Frans van Houten, CEO of Royal Philips.

“Customers want to be a part of it, and the loyalty of our customer base has gone up as a consequence,” he said. “If you fully embed it into your operation, this [sustainability] is not an obligation like CSR [corporate social responsibility] was, but it’s a fundamentally different way of running your end-to-end supply chain.”

ESG is about aligning the organisation

Chair and CEO of Bank of America Brian Moynihan said on the panel that ESG reporting is about an organisation bringing its business activities in line with its sustainability goals on everything from how resources are consumed and products are made, to how supply chains are run.

Van Houten of Philips said that his organisation achieved carbon neutrality in five years after it began measuring ESG metrics and held its employees accountable to sustainability goals.

“I would like to exude the confidence that this is eminently doable, you just need to get on the learning curve so that you make progress,” van Houten said. “There’s no time to lose because, if you think about the whole climate debate, then we’re going way too slow to get to carbon neutrality.”

Adapted from: “Companies see ESG as opportunity to rise above competitors”, by Alexis See Tho, published on FM magazine on 11 February 2022.