ESG Creates Value and Drives Business Success

Environmental, social and governance (ESG) continues to be a priority for many industries. Nearly all S&P 500 companies have to release ESG reports, for example, and the majority of consumers believe that companies should actively shape ESG best practices. In response, more organizations are prioritizing and assessing their environmental impacts and sustainability efforts. The smart ones are then sharpening their focuses on issues like reducing greenhouse gas (GHG) emissions, managing corporate governance and ensuring high levels of data privacy and security.

Audra Renford, senior manager, corporate certifications at DigiKey, says companies are also under pressure from employees, business partners and entire local communities to “do better” when it comes to business practices related to a broad range of sustainability and ethical factors. 

“There’s a growing expectation that business should be ‘doing something’ in the area of sustainability,” Renford says. In some cases, those expectations are becoming customer and/or business partner mandates to “put X program in place by this date” or “implement this strategy within this specified period of time.”

It’s About Compliance and So Much More
Regulatory compliance also factors into the ESG equation, where governments worldwide are introducing new legislation related to ESG and sustainability. For example, the U.S. Securities and Exchange Commission (SEC) recently adopted rules mandating the reporting of climate-related disclosures by public companies, while the European Commission’s Corporate Sustainability Due Diligence Directive went into effect this year. The latter requires organizations to identify and mitigate environmental and human rights risks within their global supply chains. 

Thinking beyond compliance, Karis Peterson, sustainability specialist at DigiKey, says companies are factoring in a broader scope of requirements and also looking at ESG as an area of opportunity.

“When you start adopting ESG strategies and operating more sustainably, you quickly learn that it’s not just about compliance,” Peterson says. “You’re also opening up numerous growth opportunities within your company and contributing to the development of innovative solutions for your entire industry.”

Small Steps Can Make a World of Difference
Peterson says securing leadership buy-in is a good first step for any company that wants to get started on the right track with ESG and the benefits that it can provide. It also requires a lot of upfront planning and some long-term thinking, knowing that the positive results won’t just show up overnight. Put simply, ESG is a long game that produces many rewards along the way, and it’s definitely not a “set it and forget it” exercise. 

“The good news is that small steps can make a world of difference,” states Peterson, who suggests starting with a resource management project focused on energy efficiency or a waste reduction initiative focused on the supply chain. Regularly review performance on those projects and tweak them accordingly (such as setting new targets, adjusting strategies, putting new people in charge, etc.), understanding that the ultimate goal should always be continuous improvement. 

“Engage with employees, customers and/or suppliers to find out what they have to say about your efforts,” Peterson recommends. “Then, tailor your programs to align with your company’s own mission, strategies and goals.”   

Setting and Achieving ESG Goals
Procurement teams can play an important role in their company’s ESG efforts, right down to choosing the suppliers that the organization works with and buys from. The organization that’s focused on using more renewable or eco-friendly products, for example, can lean on its procurement team to help discern which available suppliers share their values on the ESG and sustainability front. 

Finally, be sure to factor your own customers’ expectations into your ESG efforts, knowing that their principles should guide your thinking in this area. And don’t forget to collect and monitor the related data, and have it handy for suppliers and stakeholders to review upon request. If, for example, your company has reduced the number of miles that its trucks travel or the amount of packaging it uses for its final products, be ready to prove those points. 

Having that data will also help your company assess and improve its own ESG strategies. Renford says, “The collection, monitoring and measuring of the data gives organizations a chance to identify where they can even further reduce their carbon footprints, and where they can set even more ESG-related objectives and targets.”