Amid economic uncertainties, ESG plans remain critical

The sustainability reporting landscape has witnessed many milestones in the past few years. ILLUSTRATION | SHUTTERSTOCK

As global and local markets reflect current uncertainties, prioritising key ESG initiatives in cost-effective ways will become more imperative.

ESG concerns do not go away in times of volatility and the need to assess environmental and social risks and opportunities that are most significant to businesses is not lessened in an economic downturn.

Rather, businesses will need to continue assessing and refining their ESG strategies and prioritise actions that will help them successfully navigate through uncertainty and ensure long-term value and resilience.

It is times of economic uncertainty that could present an opportunity for businesses to mature and develop their approaches to ESG issues that would have a significant impact on the business and stakeholders in the future.

This requires a clear understanding of not only the environmental and social benefits but also the associated financial benefits.

Refining ESG strategies can help guide on areas where expenses are going and where resource efficiencies can be optimised.

Therefore, it would be a tragedy for businesses to use the heightened macroeconomic challenges as an excuse to cut back on ESG initiatives.

In crafting ESG strategies amid economic uncertainties, it is advisable that businesses avoid the temptation to cover the universe of ESG issues.

Instead, the focus should be on ESG issues that are likely to have a substantial impact on the enterprise value and finances of the company and stakeholders, depending on, among others, the business’s sector, size and geographical location.

This means that an organised, strategic approach is vital for success. Ideally, businesses should craft ESG strategies that;

Guide the business’ ESG narrative. By focusing on issues with material impact on the business and stakeholders, the business can communicate its ESG initiatives more effectively and transparently.

This eliminates guesswork as to what ESG initiatives a business has committed to;

Ensure long-term financial health. An ESG strategy aligned with an organisation’s strategic plan supports key results like operational excellence and employee engagement.

High-performing companies can better navigate volatile economic conditions and seize opportunities to reduce operating costs and improve access to capital;

Ensure compliance with regulations. Increasingly, there are various standards and regulatory requirements to be considered in ESG matters.

A strategy ensures companies comply with ESG regulatory requirements, avoiding consequences such as fines and other penalties.

Create room for accountability: An ESG strategy lays out a company’s ESG goals so that all stakeholders, including employees and investors, can move forward together. Accountability for goal progress communicates the company’s dedication to ESG to stakeholders.

Provide measurable data: It’s helpful to evaluate ESG initiatives based on their impact. Businesses can quantify and communicate how their ESG initiatives are preserving and creating value for stakeholders.

Amid global uncertainty, smart organisations will spot new opportunities to grow their business, with ESG front of mind, backed by SMART strategic objectives.

It is during these times that the practical function of ESG to provide extra-financial insights that facilitate better business and investment decisions can be tapped into, which done properly, should lead to economic growth.

It is also likely that the crisis will accelerate the pace of change, with a reduction in the use of non-renewable carbon fuels, adoption of climate adaptation strategies and resilience in supply chains.

The writer is Managing Partner & ESG Lead - Protos Capital LLP.

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