Business Championing Social Change

With the global movement on sustainability gaining ground, scrutiny is intensifying on companies’ ESG actions and performance. Once considered a niche area, sustainability and ESG reporting has become de rigeur for many large companies – more than 90% of S&P 500 companies and nearly 70% of Russell 1000 companies now publish ESG reports in some form or other. 

However, these efforts cannot be limited to just major companies but must extend to the vast world of micro, small and medium enterprises (MSMEs), which make up the largest share of companies, globally. By and large, these establishments lack the financial power to undertake ESG commitments which limits their participation in these issues. Impact financing will be crucial to supporting MSMEs in their journey to adopting and adapting to global ESG goals.

The Growing Challenges Facing Companies 

This imperative will only grow as the effects of climate change worsen. According to the National Oceanic and Atmospheric Administration (NOAA) in the US, extreme weather events are growing in frequency. These catastrophes have a significant price tag attached: in 2022, businesses lost US$13.5 billion in flood damage and 3.1 million days of operation. In another 30 years, those costs could rise to US$16.9 billion and 4 million lost days. 

What’s more, the ongoing Russia-Ukraine conflict will continue to exert impacts on the business community, both locally and globally, even as the world continues to grapple with a post-pandemic world. According to estimates by the IMF, the ultimate cost of the pandemic could hover around US$12.5 trillion by the end of 2024 as issues arising from supply chain disruptions, inflation and hiked interest rates continue to ripple out across the global economy. 

Amid these challenging circumstances, companies will have to navigate a labyrinth of increasing risks and even the most stalwart businesses and investors are wary about the future. 

It’s evident that the challenges facing them now are not solvable by old means – businesses need to take a new tack, approaching these issues with a fresh mindset of a sustainable and inclusive prosperity. Corporate social responsibility is no longer “nice to have” but an undeniable need as pressure builds from consumers, regulators and the global community. 

Corporate ESG Reporting is Essential

Where to start? Business can begin by tackling low-hanging fruit such as starting or improving on their social and environmental impact reporting. Currently, there are a variety of ESG reporting frameworks that companies can adopt, however there is no single, widely-accepted standard. Ultimately, companies should strive to use a standard that is clear and easy to understand and can also reflect the complexity and fullness of their business models. The diversity of available metrics and standards can occasionally result in companies choosing models that do not adequately reflect the reality of their efforts. 

However, this may change in the future as advocates—such as the world’s four largest accounting firms—push for a common set of ESG metrics to be utilized as part of their financial reporting processes. “The combined impacts of climate change, COVID-19 and economic inequality contribute to the urgency for businesses to embrace long-term, sustainable value creation and prioritize the needs of people and planet and the creation of broad-based economic prosperity,” said Carmine Di Sibio, EY global chairman and CEO, on the issue. 

Companies shouldn’t see these added reporting responsibilities as a cost center, but as a value creation opportunity as sustainability issues become a key issue for customers, shareholders and investors alike. 

Across various surveys, shareholders are demonstrably getting serious about the need for sustainability, preferring to partner and buy from enterprises that commit and perform well on these issues. Institutional investors are also zeroing in on responsible investments, with BlackRock reporting in 2020 that they are accelerating the integration of sustainability into their business. According to a 2020 McKinsey survey, more than 60% of customers report that they would pay more for products with a sustainable edge, with another 78% saying that sustainable lifestyles are important to them. 

It’s not just about the environment either, as socioeconomic issues are also rising to the fore. Worker demands for better wages and working conditions are driving companies to change their approach to foster better policies on employee recruitment, wellbeing and skilling. For example, in 2021, Amazon launched WorkingWell to improve their employees’ mental and physical wellbeing by promoting “scientifically proven” activities. 

Building on a Collaborative Approach to Sustainability 

To truly make corporate sustainability action stick, there needs to be a consolidated cooperative approach that factors in feedback from every stakeholder in the business value chain. Companies must make serious investments and champion social change through inclusive initiatives that center people at the core of any design, discussion and decision for companies moving henceforth.

Taking this collaborative approach will not only ensure progress on these issues, but also help the benefits of these initiatives spread throughout the company – from its shareholders and consumers, all the way down to its rank-and-file employees.

The future is uncertain for the business community, but they cannot hope to progress without thinking about the community they serve first. Not just consumers, but also their employees. As leaders, their actions will determine how the world around them reacts to these changing times, but they also stand to gain significantly if they get it right. Those who are quick to pivot and make changes to their ESG policies for the betterment of the society will remain relevant in days to come.