Today, ESG goals have become a central part of enterprise reporting as companies look to safeguard future risks. Conscious consumerism has been on the rise for years and now, more than ever, businesses are investing in sustainable and ethical solutions.
So, what exactly is ESG? And why does your company need to invest in sophisticated ESG reporting software if you want to succeed in the next ten years?
In this article, we’ll explore why ESG reporting has become so important, how ESG policies can benefit your company and how reporting software - which can capture data and information about your suppliers from self-assessments, documentation, audits etc – is the best option to track and report on these goals.
Before we approach why ESG may be important for your company, it is important to understand exactly what it is.
ESG stands for Environmental, Social and Governance. In recent years businesses have been paying increasing attention to these non-financial factors to understand how they can provide growth and enable companies to become more socially conscious. Understanding and investing in ESG issues has been seen as a way to safeguard businesses from potential risks and provide a platform for broad success.
Let’s look at each element individually:
In general, businesses will naturally excel or alternatively underperform in certain areas. Executives, investors and managers will need to decide which elements of ESG are most important to them and their company’s growth. Then they will need to decide on how to measure, report and act on data concerning their ESG scores.
So, we’re clear now on what ESG means and the role it plays, but why is ESG’s importance growing?
In the US during 2021, ESG focused funds were measured to be worth around $51.1 billion. This is a massive number and considerable increase from 2019 when ESG focused funds only amounted to 5.4 billion. Evidently, there has been a sizable effort to direct more money and attention towards ESG efforts in recent years.
The practice of investing in ESG began back in the 1960s but the term ESG was only coined in 2004 by former UN Secretary-General Kofi Annan. The push since 2004 for companies to implement ESG factors has come from regulators, legislators, investors and a business ecosystem that is increasingly environmentally and socially aware.
To operate as a modern organization in today’s business ecosystem companies must perform well on ESG. You must anticipate laws and regulations and try to stay ahead of the curve.
“Many companies want to address the ESG factors that are material to their industries, and there is an increasing expectation of corporations to not only maximize shareholder value but take a broader role in society.” - Sara Bernow, Partner, Mckinsey & Company
Another element that has influenced the growing importance of ESG is the COVID-19 pandemic. The instability and unforeseen risk of the pandemic has forced investors and policymakers to accelerate their sustainability plans and prioritize ESG. Society is dependent on businesses of all sizes and there is a need for well-functioning companies that create jobs, protect natural resources, contribute to communities and safeguard consumer interests.
Businesses that make efforts to uphold sustainability tend to be more efficient and will have an easier time reducing costs in the future. For example, Nestlé is set to invest $2.1 billion by 2025 to change their packaging to more sustainable material. This will help Nestlé significantly reduce their carbon footprint and prevent heavy non-compliance costs to do with plastic packaging.
ESG has been identified as a vital tool for attracting talent and more professionals shift their priorities around the environment and social issues. Having strong and forward-thinking ESG policies will appeal to individuals who want to join organizations that care about their employees, the communities they work in and the wider world. Indeed, “building teams of like minded individuals who share a commitment to ESG best practice and sustainability is likely to pay dividends both commercially, and in terms of staff performance and retention.”(GlobalBanking&Finance).
As we mentioned before, part of the push behind ESG has been coming from regulators and legislators. One of the benefits of investing in ESG is that you reduce your chance of falling foul of regulation bodies as regulations and laws evolve. Additionally, businesses will also face less pressure from stakeholders like unions and activists if they are being proactive in areas like sustainability and diversity & inclusion.
Businesses that demonstrate a strong ESG approach will have an easier time growing their business, especially when entering new markets. Governments will be more likely to facilitate access with licenses and permissions if they know the company is responsible from an ESG standpoint.
We know how important ESG reporting software is for modern organizations. Businesses need to take every chance they can get to make a difference when it comes to ESG and Kodiak Hub is here to help with you
Our modules in(Site), on(SITE) and KP(insight) have many features that will help companies assess their ESG work and meet their goals. We’ll show you a few examples below:
Build ESG assessments with drag-and-drop template builders using data and standards from global attribute libraries - making sure that you cover all the requirements for proper ESG reporting.
Use our automated workflow to send out assessments to your suppliers while getting notified if you’re lacking any information, so that you can take the necessary action.
Our ratings turn information into intelligence - Set your KPI’s and Acceptance evaluation criteria and build your question sets. Our software will then use our rating methodology to give you ESG Ratings based on your specific company and segment.
Kodiak Hub’s solution leverages both supplier compliance and performance to help our users gain a holistic view of their suppliers in aggregated rating profiles. Read more here on Supplier Performance and Why it Matters.
Explore how Kodiak Hub's end-to-end SRM software empowers your organization to streamline your Supply Chain Compliance with robust Supplier Self-Assessments, Supplier Scorecards, and more.
A world-class SRM system can improve your ESG reporting with robust Supplier Performance Management solutions and Supplier Collaboration & Innovation tools.
With our ESG Tracking Software you'll be able to view historical data over your ESG reporting to see if a specific supplier is getting better or worse over time.
Each of Kodiak Hub’s modules have several features that will help you maximize your ESG potential and make a real difference. To learn more about how to build useful ESG Assessments watch our webinar on “10 Tips to Build Cool & Quantifiable ESG Assessments”.
Until next time!