In response to the escalating climate crisis, new environmental legislation, a global pandemic and the resulting financial crisis, business and financial leaders have been forced to rethink the fundamentals of mainstream business models. Shifting focus more keenly on environmental concerns and organizational resilience, a transformation is underway that inextricably links sustainability with competitive advantage.
Most organizations are familiar with sustainability–but sustainability does not operate in a silo. As a major influencer in an organization’s overall environmental, social, and governance (ESG) practices, a holistic approach to sustainability can empower business resiliency and demonstrate corporate social responsibility. A renewable energy project, for example, overlaps with social values and outcomes, all of which are driven and supported by corporate governance.
What is ESG?
An organization’s ESG plan not only preserves the planet’s natural resources, it protects a company’s bottom line and demonstrates its core values as they relate to stakeholder accountability, equality, diversity, inclusion, corporate social responsibility, and the governance.
Defining the Environmental, Social and Governance aspects of ESG
E = Environmental Criteria
The E considers how each organization affects and is affected by its environment. Sustainability planning is essential to successfully address the E in ESG.
S = Social Criteria
The S considers how a company manages its relationships with employees, suppliers, customers, and communities.
G = Governance
The G considers the internal systems, stakeholders, controls and procedures that an organization has in place to govern itself, make effective decisions, and comply with regulations.
Why is ESG Important?
Sustainability planning is a major player in ESG. However, integrating renewable energy into an organization’s energy strategy and tracking the subsequent carbon reductions is only the beginning. The events of 2020 have shined a light on the social and governance practices of organizations, giving ESG even greater relevance–not only for investors, but consumers, suppliers, and the government as well.
How Does ESG Create Business Value?
The ESG values and practices of a business can not only impact an organization’s resiliency, sustainability, and surrounding community but the global economy and environment as well. Multiple studies indicate that companies considered to be good corporate citizens perform better financially than those that don’t. Here are five ways in which ESG can create business value for organizations in all markets and industries.
1. What’s Good for the Environment is Good for Business
If your organization has not yet integrated renewable energy into its commercial energy mix, you are likely seeking best practices to do so because clean energy is good for the planet and it makes good business sense. Whether it’s a wind or solar energy project or buying renewable energy credits (RECs), renewables help to reduce costs and energy price volatility while offsetting carbon emissions and boosting public appeal.
2. Energy Independence
The increase in extreme weather events is increasing energy price risk. Gaining independence from commercial energy supply sources by generating your own electricity through renewable energy, or subscribing to a community solar program, reduces or removes your dependency on the local power utility and helps to stabilize price risk.
3. Cost Reductions and Financial Incentives
Local, state and federal governments support the move toward renewable, clean energy and lowering greenhouse gases. Therefore, several financial incentives and assistance programs are available to organizations participating in clean energy initiatives. These programs can vary greatly by region, so it pays to have a sustainability plan in place and to understand the clean energy opportunities in your area.
4. ESG Enables a Powerful Return on Investment
The events of 2020 proved to be a major turning point for ESG investing with environmental, social and governance criteria ranking alongside traditional financial metrics. Also, when governing authorities trust corporations, they are more apt to award them the access, approvals, and licenses that afford fresh opportunities for growth. Likewise, consumers are more apt to purchase from organizations that are viewed as environmentally and socially responsible.
5. A Strong ESG Proposition Boosts Public Relations
It’s not just the government and investors who are analyzing an organization’s ESG. It’s B2B clients, consumers, partners, brokers, developers, suppliers, job seekers–the list goes on.
McKinsey & Company reports, “A strong ESG proposition can help companies attract and retain quality employees, enhance employee motivation by instilling a sense of purpose, and increase productivity overall.” Correlating ESG with higher job satisfaction, McKinsey states, “Field experiments suggest that when companies give back, employees react with enthusiasm… Just as a sense of higher purpose can inspire your employees to perform better, a weaker ESG proposition can drag productivity down.”
Getting Started with ESG Planning
The stronger an organization’s ESG proposition, the greater the chance for long-term success. To remain resilient, competitive, and environmentally compliant, today’s organizations, enterprises, institutions and municipalities must develop and execute an effective and public-facing ESG plan.
There are myriad ways to approach ESG and specific criteria by which organizations are evaluated. Premier Power Solutions is part of the NextEra Energy Inc. family of companies. NextEra Energy is the world’s largest producer of wind and solar energy. As part of NextEra Energy, the Premier Power Solutions team is uniquely positioned to analyze, facilitate and execute your renewable energy project and ensure it is a cohesive fit with your overall energy strategy.
If you’d like to develop or strengthen your ESG plan or you could use additional insight and guidance on sustainability and renewable energy, our consultants can help. Contact us to discuss your sustainability, ESG, and business goals and learn more about our approach to a successful ESG strategy.
McKinsey & Company: Five Ways That ESG Creates Value
Deloitte: Sustainability for Consumer Business Companies, A Story of Growth
Greenbiz: Betting big in the fight against a changing climate
CNBC: Sustainable investing is set to surge in the wake of the coronavirus pandemic
Navex Global: Environmental, Social and Governance (ESG) Global Survey Conducted by NAVEX Global Reveals Strong Adoption Across Public and Private Companies
Forbes: Three Unexpected Trends Driving 2021 ESG Inflection
Bain & Co.: The Expanding Case for ESG in Private Equity