- Understanding ESG
How an ESG strategy can help put your business ahead of the pack
Developing an intentional ESG strategy can help your company gain a competitive advantage.
- There are many organisations, tools and resources to help your business start on its sustainability journey.
- ESG factors are shaping access to capital, consumer purchasing decisions, and supply chains.
- Aligning your business values with your team can boost employee motivation and recruitment success.
- Sustainability concerns are not going away: having a solid ESG strategy can help you be a first mover and gain a competitive advantage.
From the unstoppable rise of green finance to the pervasive impact of environmental, social and governance factors on consumer purchasing decisions, there is now both a moral and business case for developing a solid ESG strategy.
As companies face a turbulent economic landscape, and the planet faces a growing climate emergency, traditional business models solely focused on shareholder profit are proving inadequate. Today’s challenges require purpose-led businesses that shoulder a wider set of responsibilities.
But embracing these responsibilities doesn’t need to be to the detriment of success. Starting your journey towards sustainability could – in fact – provide a competitive edge. The choice between profit and purpose is over.
At HSBC’s Drive 20221, experts James Ghaffari, Director of Growth and Product at B-Corp UK, and Krishnan Rajagopalan, Head of APAC Partnerships at Stripe Climate, spoke with HSBC’s Global Head of Sustainable Finance, Martin Richards.
Starting your sustainability journey
For many small businesses, when it comes to developing a sustainability strategy, knowing where to start can be difficult. But taking that first step might be easier than it seems.
“The biggest businesses in the world will have large sustainability departments. But there is an advantage to being a smaller business,” says James Ghaffari. “You're more agile and you're more innovative; so, don't be put off by a lack of resources.”
Organisations such as Stripe Climate offer small businesses accessible options to help reduce their carbon footprint. Stripe’s plugin technology allows a company to allocate a portion of their online transitions to fund carbon removal projects.
“This is a hard journey to undertake by yourself; it could be more beneficial and more impactful if you're part of a larger movement,” says Krishnan Rajagopalan. “Stripe Climate essentially started with the thesis that individual companies have limited resources, but together we can have more of an impact.”
B Corp offers useful tools for businesses at the start of their sustainability journey, including providing businesses with a free overall assessment of their values and current ESG impact.
Building a successful (and sustainable) business begins internally. Conversations about business values can have significant benefits on employee motivation and engagement. More than ever, Millennial and Gen Z workers are looking to align their personal values with those of their employer. Setting out an intentional approach to ESG issues can improve recruitment processes and boost employee satisfaction.
“All teams can bring their personal sustainable values into the office, and it gives them real motivation to be part of the direction of the business,” says Ghaffari.
From a financial perspective, fostering environmentally friendly behaviour can lead to considerable cost savings and improve operational efficiency. Reducing energy consumption and cutting down on waste makes both environmental and business sense.
“Lift the lid a little bit on your business and start asking questions about your governance practices. How do we treat our employees? What do we think about culture within the workplace? How do we work within the community?” advises Ghaffari.
“Just by asking yourself these questions, you start to get an understanding of how you're performing from a sustainability point of view – but you also get an idea of areas you can improve as a business more generally.”
Once you have begun to build a solid internal structure based around making a positive impact, there are a number of external benefits to be found on the path to net zero; improved consumer engagement is key.
According to Rajagopalan: “It’s up to each SME to decide how they want to play this, but the underlying principle here is data transparency – providing assets in a way that is available for different audiences to consume.”
Whether it's through product labelling, marketing campaigns, tech plugins (like Stripe Climate), or membership decisions (like B-Corp), communicating ESG values effectively can provide business with a newfound USP.
“I think what we've seen with a number of case studies of high growing companies is that you can now have profit through purpose. By creating a company that is actually purposeful at its core, it can be used to create a competitive advantage in quite saturated markets,” explains Ghaffari. “There are customers out there that are looking for products that align with their values; they're going to be more loyal and more willing to use your product again.”
And even for B2B companies, where ‘consumers’ are businesses themselves, there is a big space opening up for sustainably-minded companies. As businesses look to progressively green their supply chains, the eco-accreditation of suppliers and service providers are becoming increasingly important. ESG considerations are hugely influential when it comes to B2B relationships.
Business case for the future
Looking forward, it seems the importance of forming a solid ESG strategy is only set to increase. Governments around the world will be forced to make drastic decisions around environmental regulation, in light of the climate emergency. With sustainable practices set to become mandatory, becoming an early adopter in this area can give an SME a competitive advantage.
Access to capital is another significant consideration; green financing is a part of the investment universe that continues to grow exponentially.
“We're seeing both access to capital and pricing of capital being driven by sustainability strategies,” says Martin Richards. “We've identified over 200 venture capital firms around the world that are investing in either only climate or impact funds. We're seeing loans tied to your performance. In the general credit market, we're seeing equity being focused in this direction, and in the public bond market, we're seeing a definite discount on pricing for green bonds.”
Overall, making the move towards a sustainable future seems to be a win-win: better for business, better for people, and better for the planet – as summarised by James Ghaffari. With today’s climate threats making tomorrow uncertain, seize the chance to make a positive difference in the world and gain a competitive advantage by becoming a sustainability leader.
Please get in touch to find out how HSBC can support your sustainability goals.