Why ESG is a business imperative

Sep 26, 2022

“Companies should view ESG as a source to boost growth and value creation,” Henning Rebnord, ESG and Decarbonisation Manager, writes in this Breakbulk Magazine op-ed. He shares 4 reasons why ESG is important for businesses.

This op-ed is included in Issue 5 of Breakbulk Magazine.

A recent report by the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping shows that only 35% of the world’s 94 leading shipping companies have set climate goals. This is a low number given the strong focus on environmental, social and governance (ESG) factors, particularly on carbon emissions reduction.

It is not just shipping companies that are failing to set concrete climate goals. Of 5,241 companies surveyed in the 2021 S&P Global Corporate Sustainability Assessment, only 36.8% confirmed plans to reduce scope 1 and 2 emissions.

The findings highlight the urgent case for stronger ESG commitment amongst businesses.

There are several reasons why companies are holding back on their ESG commitments. Lack of knowledge, data, and confidence in delivering ESG goals are some of the top ones. With new regulations coming thick and fast, companies may feel pressured to set ambitious goals and get ESG procedures in place, which can be challenging when they are struggling just to keep up with minimum requirements.

Seeing ESG as a compliance issue is not productive in this context. Companies should rather view ESG as a source to boost growth and value creation, some of the reasons being:

1. Increased revenues: As consumer expectations on sustainability are growing, companies with a strong ESG approach can benefit from increased revenues through enhanced reputation, improved customer satisfaction, and growth in both new and existing markets.

2. Cost reductions: Reducing emissions normally equals lower energy consumption, which decreases the cost of fuel and electricity. Proven reductions will trigger incentives in the form of reduced fees from ports or terminals. Focus on ESG practice and reporting will also decrease the likelihood of incidents or penalties, which can be damaging to a company’s reputation and finances.

3. Human resources: A sound ESG platform will secure equal opportunity and fair wages for employees, as well as highlight the company’s sustainability efforts. This can improve employee motivation and help retain and attract talent.

4. Investment and strategy optimisation: As the focus on ESG increases and regulations adapt, a holistic ESG perspective can future-proof investments and keep companies aligned with future sustainability demands. Other benefits include favourable financial terms, as many banks are now offering green loans.

In addition to looking at the organisation itself, a holistic view of ESG topics is required. No company exists in isolation and an increased focus on ESG throughout the value chain is important.

This is illustrated by using a logistics service provider as an example; their scope 1 emissions are its customer’s scope 3 emissions – emissions from acquired services, in this case, transportation of produce.

For many customers, scope 3 emissions represent a large part of their total carbon footprint, which they will be keen to reduce. Hence, as a logistics company, providing low-carbon transportation and the numbers to prove it will be increasingly important. Those who can provide ESG figures for their business partners will have a competitive edge, but this can also highlight improvement potential in the value chain where all parties can benefit.

Getting traction on ESG, and integrating it into the business, can seem like a daunting task. However, very few companies start at zero. ESG can be seen as a framework or a categorisation of topics which are already material to the business. It will require a commitment to get it right, but the rewards will be well worth the effort.

Companies should view ESG as a source to boost growth and value creation.

Henning Rebnord

ESG and Decarbonisation Manager, G2 Ocean