Why ESG practices are a must for forward-looking companies
Why ESG practices are a must for forward-looking companies

Why ESG practices are a must for forward-looking companies

COP26 – The UN Climate Change Conference’s key-message for companies is loud and clear. If companies want to reap monetary rewards, they need to integrate their sustainability goals into their business strategy. Not doing so will send them back to the past.

One of the latest McKinsey Global Surveys backs up the UN message revealing that “83% of C-suite executives and investment professionals believe that ESG programs will generate more shareholder value in five years’ time than they do today.

Even though the ESG practices have only recently been hyped, they aren’t some new discovery or a new vision. The concept dates back to 2005 and gained “popularity” at a slow pace, as companies realized its importance. Businesses opted for integrating one or all the ESG components from the very start of their journey, or gradually adopted it along the way.

Nowadays, the ESG practices or programs are on everyone’s lips, whether it’s activists, analysts, or companies. The acronym, which stands for environmental, social, and governance, may seem like a flamboyant term, but in reality it’s a very straight-forward approach to an efficient way of doing business. Not just money wise, but also with regard to the environment and humanity.

Simply put, for those who are not very familiar with the term, here is what ESG stands for:

1.The Environmental criteria is all about a company’s environmental impact. From the energy it uses and the waste disposal to how many resources it consumes and at what pace, the carbon emissions and their influence on the people’s lives.

2.The Social criteria refers to the way a company is treating its employees, the labor relationship and the reputation it has in connection with people, institutions and the communities where it operates. It also covers diversity and inclusion.

3.The Governance criteria is basically a set of practices, regulations, and internal procedures that a company uses in order to govern itself,  to make effective decisions, and to comply with the standard laws and regulations etc.

The ESG practices don’t represent some new vibrant and cutting-edge strategy that was invented overnight, but more of a commonsense policy that companies are encouraged to address and implement in order to better adapt to the current and future business environment.

The ESG applies to every company, regardless of industry or market, because each business has an impact on the environment, people, communities, and the planet. Although not all three criteria are a priority for every company, as managers are acknowledging its importance, the ESG practices are gradually gaining ground.

The rising profile of ESG has also been plainly evident in investments, even while the rate of new investments has recently been falling. Inflows into sustainable funds, for example, rose from $5 billion in 2018 to more than $50 billion in 2020—and then to nearly $70 billion in 2021; these funds gained $87 billion of net new money in the first quarter of 2022, followed by $33 billion in the second quarter.” – McKinsey

By treating the environment, the resources and the people in a respectful and smart manner, these “forward-looking” companies, as McKinsey calls them, are ensuring their business will continue to grow and develop in a healthy way.

ESG practice

Accenture’s research on responsible leadership brings even more data to the table. “Companies that combine high levels of innovation, on one hand, and sustainability and trust, on the other, outperform their industry peers, with 3.1% higher operating profits and greater returns to shareholders.

The global market has already begun to experience an explosion in terms of “green data”. Some of them may be more truthful than others, but reality proves that sustainability will impact businesses at their core. Many companies have already recalibrated their way of conducting business, embracing a sustainability strategy that is bound to set an example in their market. The ESG practices are viewed as a must.

Some of them are focused on reducing their carbon footprint or are more inclined to cut down the dangerous or no-recyclable waste they’re producing. Some are considering switching to an almost totally remote working style, to eliminate the cost of renting an office space and consuming energy, while others are involved in leveraging sustainability by raising awareness among their customers and thus nurturing their relationship with them.

We’ve zoomed into how some companies are already setting an example in the sustainability and the ESG practices era, just to illustrate that businesses can indeed help with taking better care of resources and contribute to changing our mindset.

LENOVO – Minimum waste. Maximum recycling

LENOVO is focused on minimizing the waste it generates and maximizing recycling and reuse across their operations. In order to achieve this goal, the company set a target to reuse or recycle at least 85% of their operational nonhazardous waste.

In the 2021 LENOVO Sustainability Report, the Chief Corporate Responsibility Officer, John Cerretani pointed out that the company closed the year recording an acceleration on “digital transformation with a concentrated focus on environmental, social, and governance (ESG) practices.

The results are notable. In 2018, the company began implementing the use of an innovative bio-based packaging made from bamboo and sugarcane fiber. Although not 100% biodegradable, the packaging is significantly lighter which resulted in “6.7% less transportation CO2 emissions”.

In 2020 Lenovo reached and exceeded its climate goal one year ahead of the target: 92% emissions reduction relative to 2009.
Following the latest scientific findings of climate science, the company is set to “continually improve our environmental performance and set new 2030 emissions reduction targets.” But also, to “to evaluate potential pathways to achieve net zero.” (aka. zero carbon footprint).

SAMSUNG – Central focus: renewable energy use

Samsung takes pride in being a “sustainable, centennial company”. Starting from 2020 all their worksites in the United States, Europe, and China have been 100% powered by renewable energy sources. This was supported by installing solar and geothermal facilities in their parking lots, roofs, and new buildings.

In 2020 no less than 95% of their waste from manufacturing sites managed to be recycled. At the same time, it exceeded its goal and collected 4.54 million tonnes of e-waste and has set higher sights to collect 7.5 million tonnes by 2030.

The company has dedicated Sustainability Departments and is bound to “[…] enable our customers in proactively contributing towards a sustainable society and environment through innovative products and we seek to achieve mutual growth with our stakeholders.

FAIRPHONE – Mobiles with minimum impact on the environment

Founded in 2013, Fairphone prides itself as a company that produces mobile phones with a minimum impact on the environment by being actively committed to improving the value chain in mining, design manufacturing and life cycle. Fairphone sources its materials responsibly and advocates for workers’ welfare so as to set new standards for the entire industry.

Unlike the above-mentioned examples, this company started doing business by already having in mind a sustainability strategy ready to be implemented and be used at its fullest.

Their products have an increased repairability rate and are made of recycling materials. For example, Fairphone 3+ is made with 41% post-consumer recycled plastics. The company is encouraging people to repair their phones by themselves if the damage is not a serious one. What makes it easier for customers to do so is the fact that the battery is not a built-in one and most of the phone parts are removable.

ESG practices

Their 2021 Impact Report states that no less than “75% of CO2 emissions is created during the production of the Fairphone 4,” their latest mobile phone. This translates into 35 kg of CO2 (excl. transportation, use phase and end-of-life treatment) and proves why it’s better to repair than to produce and buy a new mobile phone.

The more we reuse and recycle, the less we need to mine and manufacture. In France and Germany alone, up to 300 million phones are hibernating in drawers and most of them are still working. Giving them a new life saves resources and reduces e-waste,” Fairphone officials say. Thus, the company has started asking people to bring their old mobile phones in return for a gift card. In 2020, this resulted in recycling over 17.000 mobile phones.

Recording an 85/100 Eco Rating and getting awards after awards, thanks to its sustainability strategy, the company managed to avoid 668 tons of CO2 in 2021 by an increased Longevity Score for their phones (Fairphone 4 has a 5-year life expectancy), through waste reduction (8 tones of e-waste was avoided), by using fair materials and by using electricity from renewable sources in their HQ.

PROVENANCE – Promote change. Raise awareness. Buy responsibly

A global leader in sustainability marketing technology, Provenance has two main directions. On the one hand, they offer companies an easy and transparent way of promoting their sustainable products. On the other hand, they help shoppers drive change through their purchasing power. Provenance works with brands to make sustainability-related information available online and in-store via QR codes. It basically enables brands to communicate their social and environmental impact to their customers.

Most of the sustainability communications that brands deliver are trapped in complex reports, B2B marketing campaigns or CSR reports, which don’t necessarily reach the customers. This is where Provenance is making a difference and offers companies a way of showing all that crucial data that educates customers and helps them choose consciously and responsively.

The data include not just information about the companies’ products (carbon offsetting, cruelty free, positive impact on the community – donating X percentage of a product value to a certain charity – recyclable packaging etc.), but also about how they view the environmental impact, their eco policies, green strategies, etc.)