5 Ways To Integrate ESG Investing to Business Growth

5 Ways To Integrate ESG Investing into Business Growth

InCorp Editorial Team

Table of Content

ESG investing aligns investment portfolios with values and supports companies in making a positive impact. By integrating ESG factors into investment decisions, investors can promote sustainability and drive positive change in invested companies.

ESG Plays a Significant Role for Businesses

ESG (Environmental, Social, and Governance) refers to the non-financial factors companies use to measure their impact on society and the environment. 

These factors include carbon emissions, employee diversity and inclusion, supply chain management, and ethical business practices. There are several reasons why ESG will play a significant role for businesses from now to the future.  

First and foremost, consumers are becoming more environmentally and socially conscious and increasingly demanding that companies be transparent about their ESG practices. 

It means that companies that prioritize ESG are more likely to attract and retain customers. In addition, investors are paying more attention to ESG factors when making investment decisions. 

Many institutional investors now have ESG criteria to evaluate companies. Therefore, business entities must score well on the set criteria to be more attractive in the eyes of investors. 

Maximizing ESG Benefits for The Long Run

Some studies have shown that companies with strong ESG performance outperform their peers in the long run. In addition, organizations that give importance to ESG factors could have a more vital ability to handle risks.

For example, a company with strong environmental practices may be less vulnerable to supply chain disruptions caused by climate-related events. 

Aside from that, employees are increasingly looking for companies prioritizing ESG factors. With ESG as one of the priorities, companies are more likely to attract and retain employees passionate about sustainability and social responsibility. 

The priority can also drive innovation within companies by investing in developing more sustainable products or processes, leading to competitive advantages and cost savings.

Read more: Understanding The Environmental Sustainability in Business

What Type of Business Needs to Take ESG Seriously?

5 Ways To Integrate ESG Investing to Business Growth

Previously, sustainability was limited to addressing environmental issues exclusively, but nowadays, it encompasses a broader spectrum of concerns, including social and governance matters.

As a result, corporations are under increased scrutiny from citizens, governments, regulators, and the media, demanding action on social inequality, corruption, tax avoidance, and climate change. 

Companies must now confront these challenges head-on and in full public view. 

Visualizing ESG Risk by Industry

The emergence of ESG practices significantly influences various sectors, such as automotive, construction, healthcare, mining, insurance, oil and gas, power, retail, and tourism. 

The subsequent section will provide specific instances of these impacts.

  • Due to the high environmental impact, businesses in the energy sector shall consider transitioning to green energy. Aside from this, community relations are strained due to the increasing pressure of climate change. The governance aspect pushes businesses to be more transparent in their dealings.
  • Companies in the healthcare sector shall consider chemical usage in their transactions. There is a severe concern regarding product safety and proper marketing. Regarding governance, there is a high importance placed on data privacy of patience. 

The Five Ways ESG Can Benefit Your Business

ESG initiatives can create value for businesses in five ways. 

1. Expand into New Markets

A strong ESG proposition can help companies tap into new markets and drive consumer preference. For example, companies with vital social engagement activities in the mining industry achieved higher valuations than their competitors. 

Research shows that consumers are willing to pay more for green products. In addition, nearly half of the companies surveyed identified business and growth opportunities as the reason for starting their sustainability programs. 

2. Reduce Costs 

ESG can reduce costs substantially by combating rising operating expenses, such as raw-material costs and the actual cost of water or carbon. 

Research has found that this can affect operating profits by as much as 60 percent. As a result, FedEx aims to convert its entire fleet to electric or hybrid engines, which has already reduced fuel consumption by more than 50 million gallons.

3. Reduce Regulatory Pressure and Increase Government Support 

A stronger ESG proposition can help companies achieve strategic freedom and ease regulatory pressure, reducing the risk of adverse government action and engendering government support. 

4. Retain Employees and Increase Productivity

A strong ESG proposition can help companies attract and retain quality employees, increase employee motivation and productivity, and positively impact shareholder returns. 

When companies engage in philanthropy, a positive correlation exists between creating a social impact and increasing job satisfaction.

5. Increase Company’s Resilience 

A solid commitment to ESG practices can enhance a company’s ability to weather unexpected events and mitigate potential risks.

Irrespective of their business model or geographic location, all companies can adopt these five links.

How to Integrate ESG into Business Plan

1. Understand ESG Factors

Companies’ first step is comprehensively understanding the regulatory landscape and stakeholder expectations. 

It will help to identify material ESG risks and opportunities and integrate them into their business strategy.

2. Set ESG Goals

Companies should establish measurable ESG goals aligned with their overall business objectives. These goals should be regularly reviewed, tracked, and reported to stakeholders to demonstrate the company’s progress.

3. Integrate ESG into Decision-Making Processes

Companies should integrate ESG factors into their decision-making processes across all business functions. 

It incorporates ESG considerations into investment, risk, and supply chain management.

4. Develop a Communication Strategy

Companies should develop a communication strategy articulating their ESG goals, progress, and impact on stakeholders, including investors, customers, employees, and the wider community. 

It will help to build trust and transparency and enhance the company’s reputation.

5. Embed ESG into Corporate Culture

Companies should embed ESG considerations into their corporate culture by educating employees and incentivizing ESG performance. 

It will help to ensure that ESG factors are considered in all business decisions and actions and create a culture of sustainability and responsible business practices.

As the importance of ESG continues to grow globally, InCorp Indonesia (formerly Cekindo) recognizes the need to provide guidance and support to companies seeking to integrate sustainable practices into their operations. 
InCorp Indonesia (formerly Cekindo) offers advisory services on ESG matters to assist in managing ESG risks, improving ESG performance, and ultimately contributing to a more sustainable future.

Pandu Biasramadhan

Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

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