Building a business case for ESG: How to achieve stakeholder buy-in and demonstrate value
In today's rapidly evolving landscape, it's becoming increasingly clear that having an Environmental, Social, and Governance (ESG) strategy is no longer a ‘nice-to-have’. ESG factors have a significant influence on the opinions of stakeholders, customers, and employees. And for businesses of all sizes, failing to prioritise ESG initiatives equates to a competitive disadvantage.
However, the path to convincing the CEO, board of directors, or other key influencers to invest in an ESG strategy is not always plain sailing. A lack of familiarity with key metrics or terminology, and critically, how ESG can be linked to financial performance are common challenges faced.
To build buy-in across your company you need to shape a strong business case for ESG. But how? Here, we explore how to build an ESG business case that is unique to your company’s specific operating environment and resonates with their leadership.
Step 1: Start with your company values and mission statement
ESG strategies are not one-size-fits-all. Every company holds a unique goal and set of values that must inform their ESG approach. As Chief Sustainability Officer or Head of ESG, you need to understand how ESG aligns with your company's mission. As a starting point:
- Consider how ESG factors impact your company's stakeholders, including its employees, customers, investors, and the broader community.
- Consider how your products and services can help meet environmental or societal needs and create shared value.
- Highlight the ways in which ESG initiatives can help your company achieve its mission, build brand equity, and better serve its customers.
Step 2: Identify the risks and opportunities of ESG
ESG factors can impact your company's bottom line in both positive and negative ways. You will need to identify the risks and opportunities that ESG factors present for your company. For example, climate change and environmental regulations may impact your supply chain and increase costs, while investing in renewable energy may improve your company's reputation and reduce costs in the long run. By identifying the risks and opportunities of ESG, you can present a compelling business case that highlights the potential return on investment.
Step 3: Benchmark against peers and competitors
Benchmarking against peers and competitors can help you build a stronger business case for ESG. Research how other companies in your industry are approaching ESG and determine how your company stacks up against the competition.
You may find that ESG has become an industry standard, and your company needs to play catch up to stay competitive. Or maybe competition is not yet moving on ESG, and you can present to leadership the opportunity of becoming an industry leader.
No two businesses are the same, and your ESG strategy must be based on the unique set of resources and competencies available to you, as well as the opportunities and constraints these present. However, benchmarking can give you visibility of the context in which you’re operating.
Step 4: Highlight the financial benefits of ESG
ESG initiatives can have a significant financial benefit. Research has shown that companies with strong ESG performance have a lower cost of capital and are more likely to attract long-term investors[1]. Implementing ESG initiatives can help combat rising operating expenses, such as raw-material costs and the true cost of water or carbon, which can affect operating profits by as much as 60%. Improving company processes can save money and increase efficiency, whether this is by redesigning equipment, reformulating products, or recycling and reusing waste.
Additionally, ESG initiatives can help companies manage environmental risks and reduce costs, which can lead to improved financial performance. For example, FedEx aims to convert its entire 35,000-vehicle fleet to electric or hybrid engines, and while they’re only 20% of the way through, they have already reduced their fuel consumption by over 50 million gallons.[2] Sustainability strategies are effective in driving resource efficiency and in turn financial performance.
And a strong ESG strategy can also boost employee motivation by instilling a sense of purpose and increase productivity overall. The stronger an employee’s perception of the impact of their work, i.e increased shareholder returns, the greater their motivation to deliver.
Highlight these financial benefits to show how prioritising the development of an ESG strategy can help your company to build a stronger brand, attract investors and customers, and contribute to a more sustainable future for all.
How RPS can help
At RPS, we understand that building an ESG business case that wins over the hearts and minds of leadership can be a complex and challenging process.
Working in partnership, we will help you to build a compelling business case for ESG integration, helping you to identify the risks and opportunities facing your business and to demonstrate the financial benefits of a strong ESG strategy.
From strategy to delivery, through to measurement and stakeholder engagement, we create value for our clients by transforming sustainability factors into deliverable and measurable ESG initiatives. We’re proud to have been named as Value Creation Advisory Firm of the Year: ESG in Actum Group's 2023 Private Equity Value Creation Awards.
Whether you’re just getting started, have an internal team in place, or none of the above - we can integrate, work alongside you, and go at your pace. For a chat with one of our team, get in touch below.
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