How much of a competitive advantage would it be, if you could successfully sell your products at a 25% premium?

A new report suggests exactly this could be possible, revealing that a third of UK consumers would be willing to pay 25% more for sustainable alternatives to their usual products. Such is the growing importance of Environmental, Social and Governance (ESG) factors within the public consciousness.

Keep reading for some guidance around developing a robust ESG strategy that makes sense for your business strategy and goals.

What is ESG strategy (and ESG?)

According to the British Business Bank:

‘ESG is a collective term for a business's impact on the environment and society as well as how robust and transparent its governance is. […] It measures how your business integrates environmental, social, and governance practices into operations, as well as your business model, its impact and its sustainability.’

An ESG strategy, then, is a roadmap or plan that lays out what your company wants to achieve with regard to ESG, how you’ll get there and how you’ll measure success.

The benefits of a robust ESG strategy

ESG matters to your customers, employees, investors and shareholders. GEP Environmental say a strategy for ESG is ‘an important benchmark for how responsible organisations operate’.

Claire James, Head of ESG Strategy for KPMG in the UK, puts it this way:

‘ESG is now a top priority for the C-suite. Cost of inaction could be potentially high, both financially and reputationally. It could mean you lose out on your competitive advantage, miss out on opportunities to expand into new markets or segments, or attract regulatory scrutiny.’

A strong ESG proposition could unlock conscious consumer spend

Consumer demand for sustainable business is growing. EY UK find “planet first” consumers are now the UK’s biggest market segment, with a 26% market share. 35% of consumers in the UK actively avoid brands that damage the environment — representing £150 billion of retail spend.

A strong ESG proposition can help you attract, engage, and keep talent

Like consumer expectations, employee expectations around ESG are changing. 26% of UK workers would take a pay cut to ensure their business acts responsibly in terms of the environment, and 28% would leave their job for somewhere more environmentally conscious. A strong stance on ESG can significantly strengthen your employee value proposition.

A strong ESG proposition is becoming a hygiene factor for investors 

Gartner’s research shows that 91% of banks monitor ESG, along with 24 global credit rating agencies, 71% of fixed-income investors and over 90% of insurers. 85% of investors considered ESG factors in their investors in 2020. If your organisation needs access to capital, developing your ESG proposition could strengthen your claim.

McKinsey shares five concrete ways a commitment to ESG creates value

1. Top-line growth

Attract more customers and improve access to resources through stronger community relationships.

2. Reduce costs

Optimise waste, lower energy consumption, reduce water intake, and increase packaging efficiency costs.

3. Regulatory intervention

Unlock greater strategic freedom through deregulation and earn government financial support. Avoid penalties and fines.

ESG and the law Global Legal Group (GLG)’s chapter, Environmental, Social & Governance Law UK 2022, calls the UK’s ESG legal landscape ‘fragmented’:‘There is no single, overarching piece of ESG legislation or regulation in the UK. Rather, the UK’s ESG regime comprises a somewhat disparate array of domestic and EU-derived laws and regulations, many of which are not solely ESG-focused’.The chapter outlines how these requirements differ depending on various factors like company size, turnover and equity share value. When building your strategy, take legal advice to understand this complexity and avoid regulatory scrutiny and fines.This is a pertinent topic right now, given the recent high-profile $1.5 million fine on BNY Mellon for ‘greenwashing’ – that is, making false or deceptive claims around ESG. These investigations are expected to have an influence overseas, as UK authorities step-up scrutiny on organisations over ESG claims.

4. Increase productivity

Boost employee motivation and attract – and keep – talented people who contribute more to the bottom line. 

5. Optimise investment and assets

Improve investment returns by better allocating capital, for example into sustainable equipment.

How to develop an ESG strategy

Your strategy should reflect your current situation, vision and roadmap regarding environmental, social and governance factors.

Etienne Cadestin, CEO at sustainability consultancy Longevity Partners points out the importance of developing the right-fit strategy for your business:

‘The starting point is to recognise that every business is different. What works for businesses you perceive as similar to your own, ultimately won’t work to the same degree for you.

Every business has different internal stakeholders, external stakeholders, supply chains, locations, budgets, and goals. Your ESG strategy must be bespoke if it is to be effective’.

With that in mind, here are some guidelines to consider when developing an approach to ESG that makes sense for your organisation.

Get broad business buy-in from the start

Larger organisations might appoint a Head of ESG or Chief ESG Officer, but your strategy is unlikely to be successful without broad support across the business.

Working closely with senior executives can help ensure ESG is genuinely an important priority – not a priority in name only. As with any major initiative, a senior sponsor is usually valuable in galvanising broader support and amplifying your ESG message to drive action.

As change management specialists Prosci point out:

‘Executives and senior leaders play an essential role as primary sponsors of change. They give the change credibility, authorize funding and resources, and perform important employee-facing activities. People in the organization look to these individuals at the top to demonstrate why the change is necessary and perform other critical activities as only they can.’

Establish SMART ESG goals 

Your strategy should start from a handful of tightly defined ESG goals, to focus progress and allow you to measure success.

SMART goals – goals that are Specific, Measurable, Achievable, Realistic, and Timely – are a common way to achieve this focus. For example, ‘achieve 80% positive employee feedback on inclusivity by Q4 2022’ is better than ‘build an inclusive culture’.

Some examples of ESG goals might include:

  • Award 30% of contracts to diverse suppliers by 2025
  • Increase senior management diversity by 20% by 2024
  • Raise wages to the real living wage across the business by 2023
  • Give 100% of employees unconscious bias training by 2023
  • Allocate 10% of new capital to sustainable sources by 2023
  • Reduce waste by 30% across all owned facilities by 2023
  • Become carbon-neutral by 2025
  • Invest £1 million into UK social causes by 2026

A materiality assessment can be a critical tool to help you set these goals.

Conduct a materiality assessment

According to ESG and sustainability consultants, ESG PRO: ‘a materiality analysis is a methodology that a corporation can use to identify and assess the potential environmental, social and governance (ESG) risks that could have an impact on the firm and its stakeholders.’

It’s a method of calculating which ESG risks and opportunities are relevant to your business, which then helps inform your ESG goals, metrics and reports.

ESG PRO suggest this process commonly starts with surveys or interviews with relevant stakeholders like ‘employees, customers, suppliers, business partners, community members, investors and regulators’ to understand which issues emerge as most relevant.

These insights then form the foundation for an ESG strategy and reporting that focuses on what matters.

Involve your employees in ESG action

Your strategy might be created from the top but action on ESG should come from across the organisation.

For example, imagine one of your goals is becoming carbon-neutral. This likely involves some major structural and process changes, like evaluating your supply chain, but can also benefit from employee input, like taking advantage of your Cycle to Work scheme.

Developing and delivering a strong ESG strategy is quickly becoming business-critical, as ESG tops the agenda for many customers, employees, investors and regulators. Staking your flag in the ground now is a statement of intent, to build a business model that works better for everyone.