How to increase the company value with ESG
The task of a limited liability firm is to generate value for its owners, and the task of a managing director and Board of Directors is to ensure that this actually happens.
A business enterprise that acts responsibly is more valuable than one that acts irresponsibly. “Responsibility” is a big word, and there is good reason to outline what it could mean to a Finnish software company, for example. How can responsibility be applied in such a way that one can recover the premium outlay involved?
ESG reporting (taking Environmental, Social and Governance indicators into consideration in corporate operations) has become well-established in terms of its position in stock exchange-listed businesses. The implementation of responsibility-based thinking and the reporting of responsibility metrics is rapidly entering the SME sector as well: at minimum, this has already been noticed by those who aspire to be a part of the supply chain of global giants or who are looking for more economical “green” financing.
All this may sound like it’s hard work. But no need to worry: on the management team level, the first version of the responsibility plan can be easily incorporated by following the process described below.
- Understanding the Purpose
What is the purpose behind the existence of your company? Where is the company needed? Why should anybody use a large part of his/her time working for the success of this firm? Which kinds of values do the owners of the business have? How about its employees? Are these matters discussed in the company?
It is good to shine light on relevance among the owners and the management team: these form the basis of the responsibility effort – and communicate to personnel in the end. The result may be an inspired and motivated group of employees!
- Materiality analysis
ESG is made up of three areas, each one of which is its own extensive whole. Striving to be a responsible company doesn’t mean that every subsection of ESG is measured and reported. Rather, there is good reason to perform a materiality analysis whose task is to increase understanding of a company’s pivotal ESG -related influences, their importance to the stakeholders and ensure that the responsibility effort targets important matters from the perspective of business operations. Like this, for example:
- to understand the expectations of the most important stakeholders
- to examine themes related to responsibility (good sources, e.g. GRI, SASB/MSCI materiality finder)
- to categorise, analyse and choose the most essential ones for your own business
Select those that are the most relevant and influential from the responsibility themes and develop a measurement tool for them. Assess the current situation by applying them to the measurement tool and outlining the target state for the future.
- Integration with strategy
At this stage, perhaps three or so ESG development targets have been chosen by which the current and target states are known. Now it’s advisable to recall the company’s strategy as well as its objectives and programmes, and to combine the ESG development objectives with the strategy. From now on, you will no longer have a separate strategy and accountability programme: instead, you will have an integrated strategic development program that you run like strategic programmes with measurable goals, owners, a schedule, and monitoring at the Board of Directors level.
If you still want to bind your company’s development effort with global targets, read the UN goals of sustainable development and scrutinise the internal responsibility goals you find against them. This makes it easy to communicate how your business is contributing to world improvement on a grand scale.
- Measurement and reporting
Having come this far, there is ample reason to document the process. At the very least, it’s worth writing down the selected development items, their current status, the target, success trends, and how they all relate to the strategy and/or UN goals.
After describing the process and reporting the results, you have concretely demonstrated that your company meets the requirements of the 2020s regarding responsibility: it is conscious of the effects of its operations on the environment and stakeholders, and you are personally aware of the firm’s development targets and are actively developing your business enterprise.
Responsibility is a matter that concerns the Board of Directors and managing director
The work described above is reasonably easy to do when you know the company’s business. Improving on the results is, on the contrary, more complicated – because it demands functioning in the everyday work as well as good management and commitment on the part of personnel. For these reasons, and because ESG is a part of the company’s strategy, its owner should be the managing director, at the very least, one of the members of the management group. There must also be an understanding of responsibility on the Board of Directors level.
ESG work improves corporate value
By bringing the principles of responsibility into business operations:
1. To improve management:-
- To reinforce personal values and relevance
- To create a more relevant workplace culture
- To bring about commitment among personnel and motivate them
- To understand responsibility-based impacts on business operations, stakeholders and environment of the company
- To understand what is essential from the perspective of business and concentrate on its development
- To utilise new business opportunities, intensify innovation, obtain savings and reduce risks
- To raise the level of the company to the requirement standard of the 2020s and prevent paralysis
- To understand and communicate how the world can be improved through business
- To achieve higher valuation coefficients
In this manner, the value of your enterprise grows, and you have elevated your firm to the honorable rank of responsible companies.