ESG is About Business Performance (not just ethics!)
Environmental, Social, and Governance (ESG) considerations have evolved from being a 'nice-to-have' to a core business priority. Companies that embrace ESG aren't just ticking compliance boxes—they're cutting costs, reducing risks, and gaining a competitive edge.
At Carn Advisory we are firm believers that any ESG strategy has to help businesses drive performance and growth, so we set about pulling together some real-world examples to illustrate how a well conceived ESG strategy can do this and have included some example key performance indicators (KPIs) to help illustrate how a business might be able to demonstrate progress and ROI.
A Quick Look at ESG’s Evolution
ESG gained prominence in the early 2000s with the United Nations' Principles for Responsible Investment (PRI). Since then, investor demand, consumer expectations, and regulatory pressures have transformed ESG from a voluntary initiative into a business necessity. Companies integrating ESG into their strategies are now seeing better financial returns, stronger reputations, and lower operational risks.
ESG in Action: How Businesses are Winning
Let's look at real examples of companies leveraging ESG to their advantage, highlighting the relevant ESG pillars and giving illustrative KPIs which the business may use to monitor and demonstrate progress.
1. Lloyds Bank: Managing Risk and Winning Customer Trust (Governance & Environmental)
Lloyds Bank has embedded ESG into its lending policies by prioritising sustainable investments and reducing exposure to industries with high climate risks.
This aligns with the Governance pillar, improving decision-making and reducing financial risk, and the Environmental pillar, directing capital towards green initiatives.
The impact includes lower financial risk,stronger regulatory standing, and a growing base of eco-conscious customers.
Illustrative KPIs:
- Percentage of Sustainable Loans: Measure the proportion of loans directed toward sustainable projects.
- Climate Risk Exposure: Assess the bank's exposure to industries with high climate risks.
- Customer Satisfaction Scores: Track customer trust and loyalty metrics.
2. BlackRock: Stronger Portfolios and Higher Returns (Governance & Environmental)
BlackRock, the world's largest asset manager, recognises that ESG-aligned companies often outperform the market. It uses ESG screening tools to assess investment risks and opportunities, favouring businesses with strong governance and sustainability strategies.
This approach highlights the Governance pillar, ensuring responsible investment decisions, and the Environmental pillar, supporting businesses with sustainable practices.
The result is a more resilient portfolio, higher returns, and increased investor trust.
Illustrative KPIs:
- ESG Portfolio Performance: Compare returns of ESG-integrated portfolios against traditional ones.
- ESG Ratings of Investments: Monitor the ESG scores of companies within the investment portfolio.
- Investor Inflows into ESG Funds: Track the amount of capital flowing into ESG-focused investment products.
3. Bet365: Compliance and Reputation Win the Game (Social & Governance)
Online gambling company Bet365 implemented AI-driven tools to detect problem gambling behaviour, ensuring player protection and regulatory compliance. This aligns with the Social pillar, prioritising customer well-being, and the Governance pillar, ensuring adherence to regulations.
The outcomes include avoiding fines, strengthening brand reputation, and improving customer loyalty.
Illustrative KPIs:
- Incidence of Problem Gambling: Track the number of identified cases and interventions.
- Regulatory Compliance Rate: Measure adherence to industry regulations and standards.
- Customer Retention Rates: Assess repeat customer metrics as an indicator of loyalty.
4. Equinix: Cutting Costs While Leading on Sustainability (Environmental)
Equinix, a global data centre provider, invested in renewable energy and advanced cooling technology, reducing energy costs and staying ahead of sustainability regulations. This initiative falls under the Environmental pillar, as it reduces carbon emissions and operational costs.
The move also attracted corporate clients seeking greener suppliers, an ever increasing factors as companies obligated to report look to reduce emissions in their supply chain ahead of concerns around future 'carbon taxes'.
Illustrative KPIs:
- Energy Consumption: Monitor total energy usage and improvements in efficiency.
- Carbon Emissions: Track reductions in greenhouse gas emissions.
- Client Acquisition from Sustainable Sectors: Measure the number of new clients attracted by sustainability initiatives.
Conclusion: ESG is a Growth Strategy, Not a Cost
Integrating ESG principles is of course partly about 'doing the right thing'; but it's primary driver should be about making smarter, more profitable decisions that make the business more sustainable and resilient in the long run.
Whether it's reducing financial risk, improving customer trust, or cutting costs, ESG is demonstrably proving to be a game-changer across all industries.
For companies of all sizes, ESG is no longer optional. It's a way to future-proof operations, attract investment, and stay relevant in a market that increasingly values sustainability and responsible business practices.
The question isn't whether to embrace ESG—it's how soon you can start making it work for your business.
