#1 ESG vs Everything Else

Fix this, and you'll be well on your way to maximising impact and boosting your company's financial performance as a result.

Who remembers the days of CSR?

For me, that term evokes a time where "do-good" initiatives were confined to a separate department and isolated from the rest of the business.

CSR was a sideshow. 

The rebrand to ESG has been successful: it's increasingly integrated into the rest of the business and viewed as a fundamental component of long-term success.

But many businesses still make the same mistakes.

ESG initiatives are treated differently to everything else a business does

This is what ESG looks like for most companies:

"What do we need to be doing on the ESG front this year?"

"Ok, and how much would that cost?"

"Hmm... We don't have room for £x in the budget.  What can we do with £0.5x?"

"Ok great, that's approved.  See you next year."

Maybe a slight exaggeration, but that’s the general pattern.

A certain amount of budget is allocated to ESG, the costs are signed-off and written-off.

It is then mostly forgotten about.

Nothing else is done this way

Can you think of anything else in your business that would be approached in the same way?

Committing to a significant expense without regard to what the business gets in return from that cost - how it will benefit?

And without properly considering the value of those benefits in relation to the cost?

Shifting the mindset from costs to investments

Only by identifying, understanding and quantifying the benefits can they actually be realised.

If you do this, costs can be turned into investments that create measurable improvements to financial performance.

It's easy to be fixated on the costs of ESG - they are easily visible and quantifiable. 

But if you only treat ESG initiatives as costs, you will not get anything back from them.

You - and the rest of your team - need to treat them as investments.

Linking purpose with profit

The key lies in better understanding the potential benefits you can get from implementing these initiatives.

Beyond the social/environmental impact - there are many additional benefits on the business itself.

However, while the costs are easy to quantify, this is not usually the case for the benefits.

Some environmental initiatives are notable exceptions, where there are clear cost savings to be made by increasing energy efficiency, for example.

But usually, the benefits your business can realise from implementing ESG initiatives are indirect and intangible factors.

Things like:

• Employee engagement

• Customer loyalty

• Brand value

• Stakeholder goodwill

Translating intangibles into KPIs and financials

These things are difficult to measure and quantify; they cannot be easily captured in a spreadsheet.

For this reason they are often overlooked in decision-making, despite their importance.

But it is possible to link these intangibles to something you can see on a P&L.

It just takes a few steps.

Other posts will cover this in more detail, but the secret to achieving this is to follow this three-step process for each part of your business:

1. Consider how these intangible factors influence performance in a given department

2. Identify how an uplift in performance can be tracked by KPIs, and then quantify this in financial terms

3. Set targets, create action plans and track progress

You can watch a short video explaining these three steps further here.

Companies in the Top 3% are doing this:

When considering which ESG initiatives to undertake, they treat them like a capex proposal.

They undertake a thorough cost-benefit analysis on each initiative.

Companies in the top 3%* identify the wider business benefits of implementing an ESG initiative, and quantify the expected financial return over a period of time.

This allows them to calculate a financial ROI on the ESG initiatives under consideration.

Other factors are important too - you also want to consider things like:

• The level of social / environmental impact that can be achieved

• The degree of alignment with your purpose

• Necessity from a regulatory / compliance perspective

Weighing up all of these factors, alongside the financial ROI, will help you make better decisions.

It will also ensure you can implement ESG initiatives more effectively.

Once the benefits are clear and you have set targets, you can then build detailed action plans - what steps must we take to reach these targets?

You can then assign responsibilities - who is doing what, and when?

This creates clarity and alignment between departments - which is too often lacking when it comes to ESG.

* About the Top 3%

Only a small fraction of companies have been able to unlock the significant advantages that come from linking purpose with profit.

Next steps

1. View your ESG initiatives through the lens of them being investments, rather than costs.

2. Start looking for the wider benefits your business can realise from implementing them, and how they can be quantified.

3. Stay tuned for future newsletters, which will provide more detail on the topics covered today, including:

   • How to translate intangibles into KPIs and financials

   • How to complete a detailed cost-benefit analysis for ESG initiatives

   • How to create action plans and implement effectively

The journey towards a better way of doing business

We are on the cusp of a new paradigm of responsible business, and helping impactful companies pair purpose with profit will accelerate the shift.

I believe this holds the key to solving many of our greatest challenges and inspiring positive change throughout society.

If you can think of two or three others that would find this newsletter helpful, I'd be really grateful if you share it with them.

Your thoughts

Thanks for reading the very first Towards Better newsletter!

I would love to know what you think:

Was this useful?

Right length and level of detail?

Thanks for your support.

P.S. — A sneak peek at next week...

ESG is often an additional responsibility, added to people's already overflowing to-do lists.

It is no surprise the ball gets dropped.

To get these things done - and done well - your people need to be motivated to do them.

They need to understand why.

The most powerful way of doing this is to create a clear sense of purpose, shared by everyone in your organisation.

That is the foundation for effective ESG - and ensuring your business achieves measurable improvements to financial performance as a result.

More on this next week...