When various parts of the world went into lockdowns due to Covid-19 lockdowns, clear skies, clean air, and visibility of stars due to low pollution heightened everyone’s interest in human impact on the environment. It ultimately heightened the need for mitigating the risks through ESG and sustainability. Although people have always been conscious of the environment, the pandemic escalated it further, encouraging investors to consider how businesses manage their ESG risks. They use customer due diligence services to identify suitable investment targets and make final decisions.
Besides the investor community, sustainability efforts became more prevalent in company interactions, customer communication, supplier networks, employees, and partners. With the increasing consciousness of sustainability in the business world, companies that embraced ESG compliance to save the environment created value. Over the last few years, the implementation of ESG initiatives has shown improved business finances and performance.
Similarly, sound ESG practices in an organisation increase its value due to lower costs, better capital access, and enhanced cash flow. We have created this guide to help understand how sustainability helps create value.
Attracts More Investors
Sustainability has three parameters to measure: Environmental, Social, and Governance, which stand for ESG. The concept originated among the investors, which checked how a company implements sustainable practices to perform in the stock market.
Several experts in customer due diligence services calculate ESG ratings and release them, allowing sustainably-minded investors to compare and decide. As a result, more companies are pressured to follow ESG practices to raise their ESG score and attract more investors. Companies prioritising sustainability gain more loyalty, trust, opportunity, and investment capital, and those who ignore it lose competitive advantage.
More Business Transparency
One significant benefit of embracing sustainability is its transparency between the company and the stakeholders. Several companies report their ESG data and sustainability efforts directly to the shareholders. Measures against corruption and tax transparency are the crucial components of ESG rating’s governance aspect. When a company makes its business practices transparent, it builds trust with its customers, employees, and investors, enhancing its value.
Value Increase for Employees and Customers
The social aspect of ESG initiatives help create direct value for employees by improving labor relationships and benefitting the team members, customers, and local communities. Businesses that prioritise sustainability perform better and attract more capital, satisfying employees to engage and retain them for longer.
Meanwhile, both consumers and employees require companies to behave sustainably and ethically. Companies must align their priorities as young entrepreneurs take over the consumer and labor markets. For instance, young professionals prefer working with employers with good ESG reputations. Meanwhile, sustainable products and services attract more sales compared to non-sustainable ones.
Improved Compliance with the Industry Standards
While customers and investors place a high significance on sustainability issues, ESG compliance has become a new norm among companies looking for growth. Institutional investors expect ESG investing to gain industry-standard status over the coming years. Even in 2021, 91% of banks, 71% of fixed-income investors, 90% of insurance companies, and 24 credit rating agencies worldwide monitored ESG.
Company investors now give higher priority to ESG compliance than most people think. Several US companies estimate that a significant portion of their shares goes to firms with ESG strategies. Customer due diligence services often check a company’s investors to dictate its compliance with industry standards. As more stakeholders adopt ESG strategies, different aspects of the companies, including supplier sourcing and facilities management, will require attention to sustainability.
Encourages More Partnerships
ESG compliance significantly produces better returns and creates value. A company’s prospective partners know the value of sustainability and ESG. Companies with a high ESG rating have less volatility and are more profitable. That is why the number of investors in ESG-compliant stocks has increased significantly over the last few years.
Companies that invest in sustainability have more stability, better management support, and fewer scandals. Investors check these three crucial parameters while adding a company to their portfolio. While looking to attract partnerships, a company must prepare for improved ESG performance and improve business potential and success.
Sustainability has quickly become the standard for companies across industries. Investors and stakeholders prioritise ESG compliance for several reasons, generating value and increasing long-term profitability. Customer due diligence services explain how a company’s ESG practices coincide with success and deliver high investment returns.