ESG is an area of increasing focus for CFOs. In Grant Thornton’s CFO survey for the third quarter of 2021, 57% of respondents reported that prioritization of ESG efforts has increased since January 2020. And 87% of respondents indicate that, when it comes to corporate decision making, ESG is either a major consideration, a consideration equal to financial success, or a fundamental business driver.
ESG has accelerated rapidly in importance over the past couple of years, but maturity of ESG efforts varies widely. As with many business issues, middle-market companies have fewer resources than their larger competitors to devote to ESG and have to maximize their efforts. The following four areas can help leverage ESG to deliver value now.
Use ESG as a weapon in the war for talent –
When asked which stakeholders are driving ESG efforts, employees topped the list, and company leaders were a close second. The real impetus for ESG is coming from inside your company, so effectively leveraging your ESG efforts from recruiting to hiring to employee engagement can go a long way to helping you attract, engage and retain talent at all levels. Employees increasingly want their workplace to reflect their values, so make sure you’re communicating your ESG aspirations, actions and results. Look for ways to make your ESG story relevant and compelling. What are your company’s philanthropic efforts and how many people have they helped? Have you taken steps to combat global warming? Explain your equivalent contribution to greenhouse gas reductions in easy-to-understand terms, like cars taken off the road or flights avoided. Bake ESG into your recruitment efforts – things like remote work (if it is permanent) can be related to both emissions reductions and costs savings. Telling potential employees how much time they can save by not sitting in traffic or on public transport may resonate even more.
Include ESG in performance evaluation and compensation programs –
What gets measured gets managed. In our survey, 44% of respondents reported that ESG was a major consideration in performance evaluations, while 41% said it weighed heavily in compensation decisions. Think about how you can best align employee goals with your ESG efforts and desired outcomes. And look beyond the C suite to make ESG a key motivator throughout the organization.
Understand stakeholder perspectives and use ESG as a differentiator –
From climate change to social justice, ESG issues are top of mind for a wide range of stakeholders, including asset managers, institutional investors, such as pension funds and endowments, as well as a rapidly expanding body of sustainable investment funds. Learn what matters to your stakeholders and make sure you have to tools in place to measure and report against those metrics. That often means looking beyond your corporate boundaries and being able to define your ESG impact across your entire value chain. Once you understand what matters to your stakeholders, use ESG to differentiate your organization. In our survey, 42% of respondents say their organizations want to be known as leaders and innovators when it comes to ESG. Compliance isn’t leadership. Through a materiality assessment or other method, find one or two ESG topics that really matter to your key stakeholders and then develop programs beyond those that are ‘expected’ or ‘required’. Report on those efforts and stand out from the crowd.
By effectively targeting ESG efforts, middle-market companies can do more than keep up with their larger competitors. You can turn ESG into a key differentiator that drives value for your organization.
Partner, ESG & Sustainability Services
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Managing Director, ESG & Sustainability Services
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Managing Director, SEC Regulatory Matters and ESG & Sustainability Services
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