With the United States Presidential Election coming up shortly, companies and industry leaders have been speculating what the election outcome will mean for Environmental, Social, and Governance (ESG) trends and economic policy. While the federal government does shape national policy and influence the economy, the upcoming election is no reason to pump the brakes on ESG initiatives. Regardless of who wins the Presidency, engaging in ESG-led business strategy has many benefits. Here are 10 reasons organizations should continue to invest in ESG initiatives regardless of the election outcome.
1. Investor Incentives
Studies show that investors are increasingly incorporating ESG rankings into their investment portfolio decisions, with 89% considering ESG in some form. Companies that prioritize ESG initiatives are seen as less risky, more likely to survive in the long run, and more prepared for uncertainty.
2. Consumer Values
Consumers have shown a steady increase in consciousness about sustainability purchasing over the years, but research suggests that this is only the beginning. Ethical and sustainable consumption is particularly important to younger buyers, and ESG practices have been shown to promote trust and a sense of transparency that translates into increased customer loyalty.
3. Brand Reputation
ESG has been proven to positively impact brand love and loyalty, which in turn increases brand value. According to surveys, almost 90% of consumers today are likelier to trust and support companies making environmental progress. Social impact is also highly correlated to brand reputation, with brands that make a meaningful difference in their stakeholders’ lives showing improved consumer trust and loyalty.
4. Regulations are Here to Stay
While the United States federal ESG regulatory landscape may be swayed by the election outcome, the state level and global ESG regulations will continue increasing as the impacts of climate change become more apparent. International organizations must still comply with ESG regulations to compete in the global market and companies who don’t prepare for ESG regulations will face disadvantages. U.S.-based organizations that do business in California will need to continue reporting ESG metrics, alongside organizations in other states with regulatory compliance laws.
5. Risk Reduction
ESG practices help organizations reduce risk by enabling them to better prepare for potential disasters and establish strong governance protocols to prevent and address risks. With the rise of climate-related disasters, it is more important than ever for organizations to assess their potential risks and have plans in place to prepare financially and physically. For example, an organization with an ESG-led strategy may evaluate its risks and decide to invest in solar panels to mitigate the potential fallout of an energy grid shutdown. This company would then have an advantage in a natural disaster and may be able to operate when competitors cannot.
6. Increased Efficiency
Because a large part of ESG initiatives include reducing energy use and optimizing operations, they enable organizations to improve their overall efficiency. ESG initiatives such as optimizing transportation routes to decrease gas consumption or investing in energy-efficient machinery serve to both reduce negative environmental impacts and improve efficiency, making the business run smoother.
7. Jumpstart Innovation
ESG initiatives foster innovation because they require detailed reporting and critical examination of several areas of the organization, which naturally allows for the discovery of areas to improve upon. The drive to reduce environmental impacts and energy use can also facilitate innovation in product development, processes, and even inspire expansion into newer markets.
8. Talent Acquisition and Retention
Employees are more interested in companies with robust ESG initiatives, with 58% citing health benefits, respect, and work-life balance as the most important motivators for them. Moreover, Millenials and Gen Z, who are known to highly prioritize ESG, will make up 72% of the global workforce by 2029. Organizations that prioritize diversity, governance, employee well-being, and sustainability are more likely to retain top talent in the long term. Companies that embed ESG into their corporate strategy can retain up to 93% of their workforce, achieving better continuity and avoiding the high costs of continual employee turnover.
9. Drive Higher Profitability
Companies that embed ESG into their corporate strategy also see benefits in terms of profitability. A study published in 2022 shows “that overall ESG combined score is positively and significantly associated with firm value”. Firms who invest in high ESG performance see better financial returns in terms of both value and profitability.
10. Better Community Relationships
Organizations that put emphasis on social and environmental initiatives such as investing in community gardens, local fundraisers, and community giving programs have better relationships with the communities around them. Because the majority of consumers value ESG initiatives, these visible and community-engaged programs boost brand reputation, helps mitigate potential risks, strengthens the local economy, and attracts talent.
The benefits of engaging in an ESG-informed strategy are numerous and far-reaching. Regardless of the election outcome, these benefits will remain salient. Consumers, investors, employees, regulators, and communities have all made it clear that their favor lies with organizations that have strong ESG initiatives. Your organization can begin reaping these benefits by investing in carbon accounting and emissions reductions, ESG-led corporate strategy, and social and governance initiatives.