Separate or Equal: Should Environmental and Social Issues Be an Integral Part of Your Business?
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Historically, many companies have treated environmental, social and governance (ESG) issues as important but tangential to the core business. In some cases, their motivation was a desire to be recognized as good corporate citizens. In other cases, these issues were viewed as compliance requirements, or perhaps good public relations. But more often than not, ESG issues were managed as secondary activities with only an indirect connection to the core business and bottom line.
Now, that’s starting to change. There is a growing awareness in the global business community that ESG – ranging from access to raw materials and water to income inequality and obesity - can undermine profitability and economic growth. A number of leading companies are taking deliberate steps to make ESG activities an integral part of their business strategy and operations. Is this new approach to environmental and social issues worth pursuing, or should companies stick with business as usual? Here’s the debate:
Explore all sides below by clicking on each button:
|What we’re doing today is fine.
We have special initiatives and groups dedicated to addressing environmental and social issues, and it seems to be working fine. Sure, we get blindsided by a problem every now and then, but usually we can fix it without too much damage to our brand.
|Without embedded ESG, we’ll always be chasing the market.
If we want to lead, we need to get in front of this. Making ESG activities an integral part of everything we do can improve our understanding of the market and help us identify emerging risks and opportunities. We may be able to develop flexible strategies with multiple options so we can control our own destiny, get a jump on the competition and demonstrably build the long-term value that our investors expect.
|The value of embedded ESG is hard to measure.
It’s difficult to put environmental and social benefits into a business case because traditional ROI metrics don’t really fit. Without those demonstrated metrics, how can we know what value to expect from embedding ESG into our business strategy and operations?
|It’s like any other innovation: hard to measure but dangerous to ignore.
Although companies are still trying to figure out the leading ways to implement and measure embedded ESG, that doesn’t mean we shouldn’t pursue it. As with every other kind of business innovation, uncertainty and experimentation are a natural part of the learning process.
|Embedding ESG is important but not urgent.
Making environmental and social activities an integral part of our core business makes good sense, but it seems like a long-term investment. Right now, we have more pressing problems to deal with.
|ESG issues can skip past urgent to fatal.
Environmental and social issues have the potential to disrupt markets in record time. One day we might be doing fine; the next day could be dead in the water if we don’t pay attention to all the trends that impact our business. In an age of social media and almost instant global communication, customer sentiments can change very quickly and there isn’t always time to react. Without embedded ESG, we are exposing our business to unnecessary uncertainty and risk.
|Christopher Park, Principal, Strategy and Operations, and National Leader,
Sustainability, Deloitte Consulting LLP
|Dinah A. Koehler, Senior Research Manager, Sustainability, Deloitte Services LP|
The market today is undergoing a significant shift, with companies increasingly expected to address environmental and social issues head on. Companies that trip up have seen their stock prices take a significant hit.
In a recent Deloitte survey, business executives identified three specific drivers for embedded ESG: a need to bolster the corporate reputation and brand, increased regulatory scrutiny, and higher expectations from consumers and the broader community.1 Most of the 250 executives we surveyed expect environmental and social issues to have a growing impact on their strategies, products and services,and operations over the next two years.
The good news is that this shift is a manageable challenge. Many companies today are beginning to transform their cultures to more strongly reflect ESG values and align them with their core mission and strategies.2 They are actively measuring and mitigating ESG-related risks and improving transparency, using advanced analytics to improve reporting, perceptions,and management of environmental and social risks. In addition, they are aligning their business models with their environmental and social goals,and their performance management systems with desired outcomes.
Integrating ESG activities into your strategy and operations can generate significant tangible and intangible value for your business. It can boost your competitiveness by making it more attractive to investment capital and top talent in a global marketplace that is increasingly conscious of ESG issues and risks. Also, it can reduce the risk of major business disruptions – helping to confirm your company continues to have a license to operate and grow.
The bottom line is this: embedding environmental, social,and governance (ESG) factors into your strategy and business practices isn’t just good corporate citizenship; it’s smart business.
1250 US (non-sustainability) executives, ranging from vice president to board member, working in companies with over $500 million in global annual revenues, were surveyed from November 28 to December 5, 2012. Respondents represented 12 different industry sectors, with the most respondents from the financial services industry. In a separate LinkedIn survey conducted by Deloitte, over two-thirds of 188 respondents believed their competitors pursue an ESG strategy to bolster reputation and brand.
2Deloitte conducted a LinkedIn poll survey from November 29, 2012, to January 4, 2013, of CXO, VP, director, or manager-level employees, at companies with more than 5,000 employees, across numerous manufacturing sectors.
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