Creating shareholder value begins with candidly assessing your progress
Now that sustainability is a marketplace imperative, companies are rethinking their approach to ESG.
The stakes are higher than ever, with $1.7 tn of global ESG fund assets looking to support companies that are committed to making a positive impact, and with more than $53 tn estimated in global ESG fund assets by 2025, according to Morningstar data.
Today, nearly 60 percent of investors assert companies that integrate ESG into their business strategy will outperform over the long term, according to our proprietary research.
As ESG continues to increase in importance for key stakeholders, pausing to take stock of your organization’s efforts can help determine the best strategy for value creation.
Based on tracking buy-side views for more than a decade, we have seen investors increasingly incorporate ESG into their investment decisions. According to our research, nine out of every 10 investors globally incorporate ESG into their investment thesis to some extent, including more than four in 10 noting that ESG is ‘very important’ or ‘critical’.
It’s important to strike a balance between short-term compliance-oriented ESG efforts and long-term strategy. ‘Companies can get caught up in compliance at the expense of identifying what is materially important,’ says Rebecca Corbin, founder and CEO of Corbin Advisors, a strategic consultancy accelerating value realization globally. ‘We’re moving toward an incorporation of ESG within the overall business strategy, not merely a check-the-box activity, although box-checking data disclosure isn’t going away.
‘More and more, investors are asking companies to quantify the amount of revenue generated that is in support of a more sustainable world.’
Demonstrate milestones along the journey While identifying material topics is foundational, building KPIs, goals and progress reports are critically important next steps. As we often remind clients, investors are looking for progress, not perfection.
For example, stakeholders expect management to report on near-term risks and opportunities from climate change. But the building blocks of a full assessment include longer-term, complex time-consuming steps, like life cycle analyses of products and tracking Scope 3 greenhouse gas emissions. Best-in-class firms commit to a detailed plan with targets, describe the steps to be taken and provide progress reports on a regular basis toward the goals.
Companies that can seamlessly integrate sustainability into their business strategy, tell a unified story across all communications channels and provide stakeholders with targets and progress reports will maximize the impact of their ESG value creation. It demonstrates that ESG can be an offensive advantage, rather than a defensive effort.
Ensure your ESG strategy involves continuous improvement as you look ahead to future risks and opportunities
Maximize ratings and spread the knowledge While focusing on ratings at the expense of a larger vision is unadvisable, investors rely on third parties to provide datasets and information that allow for comparisons with peers.
But determining which metrics matter in order to best track and report progress over time are decisions that inform the authenticity of your ESG story and ultimately the impact your story will have with investors. Setting authentic and ambitious – yet attainable – goals is key.
‘Many companies are now promising 2040/2050 net-zero goals and, while it’s great to set long-term targets, investors crave to know what companies are doing in the meantime,’ says Leahruth Jemilo, vice president and head of ESG at Corbin Advisors.
‘They are keen on goals for 2023, 2025 and what is being done to move the needle forward, starting today. Providing these interim breadcrumbs is necessary for building conviction in the authenticity of your ESG strategy.’
The big grand gestures such as net-zero are important – after all, we are in the midst of an environmental and biodiversity crisis – but are viewed as table stakes. What will differentiate your company are your efforts today that allow for the long-term goals to ultimately be achieved.
The Big So What™ Three ways to differentiate your ESG program/strategy to drive value creation:
For more information on our ESG practice and case studies on how we have enabled value creation, please contact Leahruth Jemilo at Leahruth.Jemilo@corbinadvisors.com.
Corbin is a strategic consultancy accelerating value realization globally. We engage deeply with our clients to assess, architect, activate and accelerate value realization, delivering research-based insights and execution excellence through a cultivated and caring team of experts with deep sector and situational experience, a best practice approach and an outperformance mindset. Inside The Buy-side®️, our industry-leading research publication, is covered by news affiliates globally and regularly features on CNBC.
