Today, ESG goals have become a central part of enterprise reporting as companies look to safeguard future risks. Conscious consumerism has been on the rise for years and now, more than ever, businesses are investing in sustainable and ethical solutions.
So, what exactly is ESG? And why does your company need to invest in sophisticated ESG reporting software if you want to succeed in the next ten years?
In this article, we’ll explore why ESG reporting has become so important, how ESG policies can benefit your company and how reporting software - which can capture data and information about your suppliers from self-assessments, documentation, audits etc – is the best option to track and report on these goals.
What Is ESG?
Before we approach why ESG may be important for your company, it is important to understand exactly what it is.
ESG stands for Environmental, Social and Governance. In recent years businesses have been paying increasing attention to these non-financial factors to understand how they can provide growth and enable companies to become more socially conscious. Understanding and investing in ESG issues has been seen as a way to safeguard businesses from potential risks and provide a platform for broad success.
Let’s look at each element individually:
- Environmental - The ‘E’ in ESG is all about the environmental impact of your business such as your carbon footprint, resource consumption, recycling policies, among other business policies that will impact the environment. Read more on How to Make Sustainability Happen For Real With Responsible Sourcing.
- Social - The ‘S’ in ESG concerns how your business interacts with the communities in which you operate. This encompasses a variety of areas to do with a company’s business relationship including diversity and inclusion policies, supplier relations, stakeholders’ interests etc. Check out more on this topic in this blog post Supplier Diversity: One Small Step for Procurement, One Giant Leap for the World
- Governance - The ‘G’ in ESG is about internal practices and policies that have an influence on compliance, accounting and other sections. For example, this could concern conflicts of interest, political contributions and protections against unfavourable treatment.
In general, businesses will naturally excel or alternatively underperform in certain areas. Executives, investors and managers will need to decide which elements of ESG are most important to them and their company’s growth. Then they will need to decide on how to measure, report and act on data concerning their ESG scores.
Why Has ESG Become So Important?
So, we’re clear now on what ESG means and the role it plays, but why is ESG’s importance growing?
In the US during 2021, ESG focused funds were measured to be worth around $51.1 billion. This is a massive number and considerable increase from 2019 when ESG focused funds only amounted to 5.4 billion. Evidently, there has been a sizable effort to direct more money and attention towards ESG efforts in recent years.
The practice of investing in ESG began back in the 1960s but the term ESG was only coined in 2004 by former UN Secretary-General Kofi Annan. The push since 2004 for companies to implement ESG factors has come from regulators, legislators, investors and a business ecosystem that is increasingly environmentally and socially aware.
To operate as a modern organization in today’s business ecosystem companies must perform well on ESG. You must anticipate laws and regulations and try to stay ahead of the curve.
“Many companies want to address the ESG factors that are material to their industries, and there is an increasing expectation of corporations to not only maximize shareholder value but take a broader role in society.” - Sara Bernow, Partner, Mckinsey & Company
Another element that has influenced the growing importance of ESG is the COVID-19 pandemic. The instability and unforeseen risk of the pandemic has forced investors and policymakers to accelerate their sustainability plans and prioritize ESG. Society is dependent on businesses of all sizes and there is a need for well-functioning companies that create jobs, protect natural resources, contribute to communities and safeguard consumer interests.
How ESG Policies Can Benefit Your Company
1. Reduce costs.
Businesses that make efforts to uphold sustainability tend to be more efficient and will have an easier time reducing costs in the future. For example, Nestlé is set to invest $2.1 billion by 2025 to change their packaging to more sustainable material. This will help Nestlé significantly reduce their carbon footprint and prevent heavy non-compliance costs to do with plastic packaging.
2. Attract Talent & Boost Productivity
ESG has been identified as a vital tool for attracting talent and more professionals shift their priorities around the environment and social issues. Having strong and forward-thinking ESG policies will appeal to individuals who want to join organizations that care about their employees, the communities they work in and the wider world. Indeed, “building teams of like minded individuals who share a commitment to ESG best practice and sustainability is likely to pay dividends both commercially, and in terms of staff performance and retention.”(GlobalBanking&Finance).
3. Satisfy Regulation & Compliance Measures
As we mentioned before, part of the push behind ESG has been coming from regulators and legislators. One of the benefits of investing in ESG is that you reduce your chance of falling foul of regulation bodies as regulations and laws evolve. Additionally, businesses will also face less pressure from stakeholders like unions and activists if they are being proactive in areas like sustainability and diversity & inclusion.
4. Improve Growth Opportunities
Businesses that demonstrate a strong ESG approach will have an easier time growing their business, especially when entering new markets. Governments will be more likely to facilitate access with licenses and permissions if they know the company is responsible from an ESG standpoint.
How Kodiak Hub ESG Management Software Can Help You Assess Your ESG Work & Meet Your Goals
We know how important ESG reporting software is for modern organizations. Businesses need to take every chance they can get to make a difference when it comes to ESG and Kodiak Hub is here to help with you
ESG Data Management
Our modules in(Site), on(SITE) and KP(insight) have many features that will help companies assess their ESG work and meet their goals. We’ll show you a few examples below:
Build ESG assessments with drag-and-drop template builders using data and standards from global attribute libraries - making sure that you cover all the requirements for proper ESG reporting.
Use our automated workflow to send out assessments to your suppliers while getting notified if you’re lacking any information, so that you can take the necessary action.
Our ratings turn information into intelligence - Set your KPI’s and Acceptance evaluation criteria and build your question sets. Our software will then use our rating methodology to give you ESG Ratings based on your specific company and segment.
Kodiak Hub’s solution leverages both supplier compliance and performance to help our users gain a holistic view of their suppliers in aggregated rating profiles. Read more here on Supplier Performance and Why it Matters.
Supply Chain Compliance
Explore how Kodiak Hub's end-to-end SRM software empowers your organization to streamline your Supply Chain Compliance with robust Supplier Self-Assessments, Supplier Scorecards, and more.
Supplier Performance
A world-class SRM system can improve your ESG reporting with robust Supplier Performance Management solutions and Supplier Collaboration & Innovation tools.
Aggregated Supplier Scorecards
With our ESG Tracking Software you'll be able to view historical data over your ESG reporting to see if a specific supplier is getting better or worse over time.
Each of Kodiak Hub’s modules have several features that will help you maximize your ESG potential and make a real difference.
Until next time!
Sam Jenks
As Kodiak Hub’s Chief Revenue Officer and resident SRM evangelist, Sam Jenks helps businesses turn procurement from a cost center into a competitive advantage. With a knack for translating complex procurement challenges into actionable wins, Sam is passionate about empowering teams to ditch the status quo — and outdated tools — for smarter, scalable supplier relationships.
