How to Generate Business Value from Mandated Sustainability/ESG Disclosure

ESG Unpacked

ESG refers to Environmental, Social, and Governance criteria, three key factors in measuring the sustainability and societal impact of a company. These factors cover a broad spectrum, from a company’s impact on climate change to its relationships with employees and the community.

Over the past few years, there’s been an increasing realization of the significance of sustainability and ESG factors in business decision-making. The global disruption during the Covid-19 lockdowns forced many business leaders to reevaluate their operations, with many acknowledging the importance of ESG considerations for a resilient future. In addition, the legal and regulatory landscape for ESG disclosures is rapidly changing, with bodies like the UN and EU advocating for increased transparency via sustainability reporting mandates. From the finance sector’s role in propelling sustainability through strict investment criteria and green bonds to government incentives like the Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA), ESG transparency is fast becoming a core business imperative. Effective ESG reporting serves as a strategic communication tool that aids in the company’s strategy formulation and its communication with stakeholders. It helps a company set targets, track performance, identify areas for improvement, and provide critical data for decision-making.

The Profit-Sustainability Nexus

The bond between sustainability and profitability is stronger than ever. A higher return on investment, increased shareholder returns, customer loyalty, and robust market opportunities are just a few of the benefits of adopting sustainable practices. Here’s a breakdown of how businesses that prioritize sustainability can outperform their competitors:

1. Risk Management: Detailing ESG factors can help companies better manage potential ESG risks, thereby avoiding reputational damage, fines, or lawsuits, while providing a roadmap to address systemic sustainability considerations such as climate change or human rights. 
2. Investor Relations: Sustainability can be crucial in securing investments for business expansion. Environmental, social, and governance criteria are now a major factor for many investors when deciding whether or not to divert funds to a particular organization, and an indication of whether your business will be relevant in 10 years. With 60% of investors saying they’ll increase investments in such companies, ESG disclosures serve as a strategic communication tool with investors and indicate a likelihood that a given organization will be compliant with increasingly stringent environmental regulations, thus avoiding liability.
3. Competitive Advantage: Research suggests that companies that disclose environmental data and set ambitious science-based emissions reduction targets have significantly higher shareholder returns, outperforming their peers. These companies can, therefore, gain a competitive advantage. Additionally, the transition to a net zero economy is creating trillions in business opportunities. While the vast majority of banks already offer green bonds and sustainability bonds, many more green products are likely on their way, such as green commercial building loans, green car loans, and green deposits. Government programs like the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) — signify an even greater federal commitment to sustainability-related investments and offer up vast financial rewards for pioneers in green business. 
4. Strengthened Stakeholder Relationships: ESG disclosures can help improve relationships with nonprofits and civil society and appeal to a consumer base that values sustainable practices. Although these benefits to sustainable practices may be somewhat intangible they can turn into more stable relationships, customer loyalty, and deeper customer collaboration
5. Attracting Top Talent: Millennials and Gen-Z professionals are increasingly seeking employers that share their purported values. A visible and verifiable commitment to sustainable practices can help companies attract and retain talent. Lower turnover means that human capital – the resources invested in training employees and the resulting repository of institutional knowledge – stays within the organization. This can amount to significant cost savings in the long term.
6. Improved Operational and Financial Performance: Sustainability initiatives can lead to operational efficiencies, cost savings, and enhanced profitability. Resource and energy efficiency is at the heart of long-term sustainable business strategies. Energy efficient and environmentally resilient assets result in paying less for energy, water, and waste management. Upfront costs and fear of financial trade-offs deter corporations from making the leap to more efficient technology, yet research continually demonstrates that the positive business return from properly equipping your business with efficient capital far outweighs the initial investment cost of doing so.  Beyond investing in capital equipment and efficient technology, sustainability planning within business operations can also yield cost savings due to data capture and auditing that often reveals costly oversights within metering invoices, energy leakages, and more. Prediction models based on peak demand and weather can also yield cost savings by pinpointing when to reduce output to reduce the average price you are required to pay in the long run. Using green certifications such as LEED, BREEAM, or WELL to design and operate sustainable buildings can greatly reduce emissions. Buildings with green certifications have been found to emit 34% less carbon dioxide, use 25% less energy, and consume 11% less water than non-certified buildings, according to the US Green Building Council. In addition, the use of energy-efficient lighting, optimizing heating and cooling systems, transitioning to smart grid technology and signing up for demand response programs, and utilizing sustainability software to provide high-level insights on budgeting and energy use, can all contribute to cost savings via sustainability. 

1. Strategic Planning: Analyzing and disclosing ESG metrics can aid strategic planning and innovation through data collection. A robust reporting framework and access to data help set targets, track performance, and identify areas for improvement.

Investing in sustainability can mean: 

1. Business strategy: Incorporating sustainability & ESG-related strategies, insights, and energy efficiency projects into your current practice through hiring sustainability officers, using efficient metering and building technologies, and improving sustainability data management. Business strategies to boost PR also include working with environmentally friendly suppliers, aiming to rank in sustainability investment funds, receiving sustainability-centered certifications like B-corp status, and dropping carbon-intensive assets before they become stranded due to regulation, public opinion, or pure demand. 
2. Decarbonization investments: Acquiring new capital, products, technology, or sources of renewable energy to cut carbon emissions across your supply chain, reduce pollution, and transition to different products & services.
3. Adaptation investments: Ensure systems & infrastructure are resilient enough to withstand severe weather, rising sea levels, and supply chain disruption. 
4. Beyond the Value Chain: Leading companies are looking to invest in climate strategies that go beyond their value chains through impact investing, charitable funds, and more to boost the preservation of carbon offset sinks like forests and ocean ecosystems or encourage innovation in climate tech. Innovative solutions to look into include nature-based solutions and new emissions capture technologies. 

The Bottom Line

Investor sentiment and customer expectations are moving towards businesses that are socially and environmentally responsible. Companies that align with these principles are more likely to attract investments and enjoy long-term success. ESG disclosures not only improve a company’s reputation and credibility but also signal its ability to comply with environmental regulations, thus attracting new investments.

While budget constraints may be a challenge for some businesses, C-suite leaders can overcome this by understanding how to effectively structure a sustainability budget. Committing resources to sustainability can unlock the vast potential of sustainable transformation, drive innovation, and result in substantial economic benefits. In essence, sustainability is not just a ‘nice-to-have’ but a ‘must-have’ for future-proofing businesses in the 21st century.

How WatchWire Can Assist Your Company With Sustainability Reporting

WatchWire is an integrated energy and sustainability management platform that streamlines, automates, and standardizes your sustainability reporting process. WatchWire collects, audits, analyzes, and stores all your energy, water, waste, and emissions data in one place, providing a single source of truth for your organization. With multiple integrations to LEED Arc, GRESB, ENERGY STAR Portfolio Manager, TCFD, and more, standardizing your sustainability reporting process is possible. WatchWire also provides real-time data monitoring, so you can see how well your sustainability measures are working and provide the most recent energy and emissions data to your investors.

To discover more about WatchWire and its capabilities, you can visit our website, blog, or resource library, request a demo, or follow us on LinkedIn, Instagram, or Twitter to keep up-to-date on the latest energy and sustainability insights, news, and resources.