How to Budget with a Sustainable Mindset

At a glance

• Main takeaway: It has become increasingly harder for businesses to ignore the valuable and long-term benefits that ESG can have to drive value and improve cost savings.
• Impact on your business: Preconceived costs associated with getting ESG initiatives up and running and not knowing where to start has often hindered businesses from taking the leap.
• Next steps: Are you ready to move the needle on your ESG initiatives? Aprio’s ESG Advisory Practice can navigate you through the planning process and develop a customized 13-week cash flow model to jumpstart your sustainable journey.

Are you ready to learn more? Contact Aprio today to start the conversation.

The full story:

Whether you’ve been an advocate for sustainability principles for years or just started your environmental, social and governance (ESG) journey, more and more businesses are acknowledging that sustainability can boost their financial performance. However, the perceived upfront costs and resources associated with getting ESG initiatives “off-the-ground” has often hindered businesses from taking the leap.

In this article, we breakdown each component of ESG individually and explore feasible solutions to integrate ESG into your company and your budgets.

Environmental: Making a Green Impact

At its core, the environmental side of ESG is about consuming fewer inputs, which  can lead to increased savings. In other words, trying to do more with less and get a higher return.

One-way companies can look at reducing their environmental impact can be from a greenhouse gas emissions and water usage standpoint. These two common opportunities both cost companies significant money and are byproducts for a variety of processes, whether it is as a manufacture or a dentist.

The trick is, identifying opportunities to reduce your greenhouse gas emissions and water usage, while generating the same output, will result in your company saving cash and increasing productivity. Now, these opportunities will look different for every company but let’s say a manufacturer is actively working to generate fewer greenhouse emissions in ways that are economical, they are essentially freeing up cash that can be put back into their business and employees.

Social: The Cost of Doing the Right Thing

There are a variety of ways the social side of ESG can impact your budget, but we are focusing on the following four main buckets— your internal community (employees), your customers, your suppliers and your external community. To tackle the social side , consider these ESG-friendly options:

1. Internal Community (Employees): When you spend money on social initiatives tied to retaining employees, focus on ways that make them feel proud about working for your company. When you do this, the benefits include increasing your retention rate and lowering your recruiting costs. Your employees’ word-of-mouth about the benefits of working at your company will go a long way.
2. Customers: To become a better supplier, concentrate on building a deeper, more genuine bond with your existing customers and demonstrate that you value their loyalty. These steps can significantly impact your revenue.
3. Suppliers: Being considered a good steward by your suppliers can be a valuable tool for certain types of your customers, particularly those focused on the sustainability in their supply chains. If you are consistently meeting the standards set forth by your suppliers, it has the potential to benefit your company in the long term, such as during contract negotiations.
4. External Community: Spending money and supporting your local community is important to brand building. This can create a halo effect with government officials, regulators, employees, suppliers and customers. While, it can be difficult to track a direct return on investment, the overall impression of your company does impact how people and organizations consider buying your goods, products, or services.

Governance: The Giant Behind the Scenes

Governance happens behind the scenes and does not receive the attention that the external components of ESG receive. However, when it comes to governance, the focus is from the senior level perspective and goals. What does the board have in terms of checks and balances on management? What does management have in terms of checks, balances and quality control for the operations of the firm? Is there some sort of regulatory compliance that needs to be met?

One avenue that boards can consider, especially with concern that interest rates will remain higher and for longer, are sustainability-linked loans. The parameters of the loan are negotiated ahead of time; however, the rate can be lower than what a traditional loan structure would be. In a low interest rate world, that might not seem like much; however, if rates remain higher and for longer, that lower rate (however little) becomes more meaningful.

The bottom line

It can be difficult for businesses to navigate through the planning and budgeting processes for ESG, especially when some indirect benefits are harder to quantify. That’s why it is important to partner with an advisor who can help you identify ESG opportunities and think through the costs associated with implementing your initiatives.

Aprio’s ESG Advisory Practice has developed customized 13-week cash flow model for clients and can help you move the needle on your ESG initiatives.

Are you ready to learn more? Contact Aprio today to start the conversation.

Related Resources

Why Your Company Should Avoid Hitting the Brakes on ESG Despite Recession Worries
What is a Governance Risk Profile and Why Does Your Company Need One?
The Pulse on the Economy and Capital Markets: October 2 – 6, 2023
About Aprio’s ESG Practice