5 ESG Investment Benefits for Management

February 18, 2022

At a glance

  • Investor expectations: In today’s rapidly changing climate, investors are demanding companies take an active approach towards implementing a robust ESG program.
  • Sustainability matters: In a three-part series, we explore the case for ESG investing and the shift towards corporate social responsibility.
  • Partner with ESG advisors: Aprio’s ESG team provides tangible support and resources to help you incorporate social “good” into your business decision making.

Are you ready to build your social balance sheet? Contact our team for a free consultation.

The full story:

Environmental, social and governance (ESG) investing prioritizes companies with durable profit growth because those companies have built sustainable relationships with their customers, employees and communities. Essentially, they have de-risked their business through strong governance, aligned product development with customer values and developed repeatable processes for doing more with fewer resources. Since the start of the pandemic, companies who possess a strong ESG program have experienced lower volatility within the chaotic markets.

While there is no standard reporting method to validate a company’s ESG performance, for many investors corporate social responsibility means better business results. In today’s rapidly changing business climante, a robust ESG program can lead to long-term sustainable growth and a competitive advantage in access to lower-cost capital. Here are five benefits of ESG investing:

1. Purpose-driven profit accelerates value and reduces costs

ESG-focused firms often have better underlying economic attributes and can expand into existing markets and even tap into new ones through strong alignment with customers’ buying values. What do we mean by this? If a company is already perceived to have an ESG-aligned brand, their new product/service development can access faster-growing “sustainable” market segments, resulting in rapid top-line growth and lowering costs through scale.

2. Attract and retain talent

Employee turnover increases expenses and reduces productivity. With quit rates at multi-decade highs, creating a workplace that connects with employees, delivers purpose and connects with the qualities your customers and talent prefer, is imperative to create sustainable profit growth. Consider focusing on developing natural products or revamping your company benefits and culture.

3. Allocate capital towards intangible goods

If you’re a CEO or sit on a company board, you have to decide where to allocate resources and how much to spend. One way to think about this is whether you’ll invest in tangible or intangible assets. We’ve seen a migration towards intangibles because they consume fewer resources, are more scalable and do not require shipping, making them more reliable for business and more environmentally friendly by nature.

4. Embrace lean management

A key component of sustainability is using the fewest resources in serving your customers. At its essence is the question business owners ask, “how can my company do as much as possible with as little as possible?” Eliminating waste (muda) and reducing your physical footprint are great examples of lean management, increasing efficiency and productivity.

5. Disseminate resources into the right buckets

There is a clear competitive cost disadvantage to actively not focusing on ESG initiatives and improving the customer experience. For example, Koch Industries began to rethink how they engaged with regulators. Instead of wasting time, money, energy and resources in a continuous struggle with regulators over compliance issues, they devoted those resources into understanding their customers better. In doing so, they not only improved their bottom line, but freed up capital for acquisitions and faster growth.

The bottom line

In today’s rapidly changing climate, ESG has become a boardroom priority. Investors are making it clear that they expect companies to take a proactive approach to how they manage and implement ESG programs. Aprio’s team provides tangible support and resources to help you incorporate ESG into your decision making.

Stay tuned for the final part of our series on the case for ESG investing where we will discuss how boards and shareholders can use incentives to align their ESG goals with top management.

Are you ready to build your social balance sheet? Schedule a free consultation with us today.