RISK, REPUTATION AND RETURN

How to get started with ESG?

ESG (Environment, Social, Governance) is a topic that is still attracting a great deal of attention. It’s no longer a hype, and some say the party is over, but that overlooks what ESG can mean for individual companies: for their risk management, their reputation, and their return on invested capital. That brings us to the question: what does ESG actually mean for individual companies? And what is the best way for companies to take their first steps in this area? I’ll briefly touch on a few aspects here.

In my experience, identifying risks is a good starting point. As an entrepreneur or supervisory director, ask yourself what kinds of risks the company faces. Consider issues related to the supply or sale of products (supply chain), workplace accidents, environmental pollution, labor shortages, increasingly strict regulations, corruption and bribery, human rights violations in the supply chain (think about how cobalt is mined), and so on. Also consider reputational risk by association, and how you’ll respond if a major crisis arises: who is responsible for what actions, and who will ensure effective communication? Finally, in this very brief overview, I’ll mention risks that are unlikely to occur but are associated with a high-impact consequence. These types of risks are easily underestimated.

Once the key risks have been identified, the focus shifts to determining which measures will be implemented and incorporated into the company’s internal procedures. And don’t forget that most ESG failures are, first and foremost, governance failures: poor implementation, poor oversight, unreliable data, unclear accountability, and weak controls.

ESG drivers include, among others: reducing business risks, changing legal landscape, better financial performance, demand from customers and suppliers, pressure from banks and investors, competitive advantage over rivals, company image, and employee engagement.

As the above shows, ESG is much more than just sustainability. At its core, sustainability is about meeting current needs without compromising future generations. In other words: the Earth must remain a habitable planet for future generations and contain sufficient resources to support human (and animal) life. The two core concepts of ESG are: mitigating risks and creating value. In that context, sustainability is one of the goals. And, moreover, a goal that sometimes costs more than it yields financially, but is nonetheless important enough to pursue.

A few comments on misconceptions. ESG isn’t just a PR tool. It isn’t corporate spin. It isn’t an introduction to communism. It isn’t a philanthropy program. ESG isn’t about reporting. And it isn’t too difficult to implement. It is, however, a way of thinking about a sustainable future for your company, the environment in which it operates, and the planet as a whole. If the key risks have been properly identified and the appropriate measures have been taken, this also benefits the company’s reputation and, ultimately, its returns. Hence the three Rs: Risk, Reputation, and Return.

Finally, as mentioned, ESG isn’t about reporting. It’s about effective communication: fostering genuine connection and building trust. So think carefully about your target audience, the message you want to convey, and how to do so as effectively as possible. I know you can do it!