Over the past few years, there has been a significant rise in the practice of responsible investment among businesses. They have become more conscious of ensuring various ethical aspects like anti-corruption, human rights, sustainable manufacturing, and fair labor in their operations across their chains. The traditional “either/or” approach to incorporating ESG infrastructure in businesses is no longer a viable concept. Their action towards an environmentally and socially conscious governance comes from a synergistic approach to business across its value chains and communities, and ultimately their organization value creation model.
Significance of Considering ESG Concerns
Infrastructure fund managers, investors, and lenders recognize the significance of following the environmental, social, and governance risks criteria in screening potential investments. They help assess the value of the assets in the long-term and help industries be future-focused. The Australian government also has dedicated public policies to guide sectors in adapting to the approach. The rise of these standards has been exponential in the past year owing to the pandemic. The legal requirements do not mandate the reporting of the ESG performance in Australia.
However, the companies must disclose non-financial information regarding specific acts such as National Greenhouse and Energy Reporting Act, Workplace Gender Equality Act, Modern Slavery Act, etc. The commitment of businesses to various suppliers, stakeholders, employees, customers, and communities has increasingly led them to accept ESG and its contribution to business performance.
What Factors Determine the ESG Factors?
The Australian companies focus on distinguishing themselves from competitors to be proactive by leading an initiative to disclose the ESG impact voluntarily. ESG infrastructure and performance, in the form of sustainability, has become a key focus among investors and their interests in businesses. To ensure positive social and environmental impact, the companies must effectively develop business strategies, procedures, and internal policies reflected in organizational practices.
The environmental determinants include clean technology, renewable energy, waste management, and greenhouse emissions. The social factors include maintaining diversity, a sustainable supply chain, compliance with the international labor standards, the company’s attitude towards workers, and their relationship with the community.
ESG Infrastructure on Value Creation
Better Growth
Having an ESG proposition helps companies expand and tap into new areas. The research mentions that consumers are willing to pay more for products and services that promote “going green”. 70% of the customers in the electronics, construction, automation, and packaging industries are willing to pay 5% more for green products that deliver the same performance standards as their non-green contemporaries.
Cost Reduction
Inculcating ESG policies can help reduce businesses’ operating expenses, including carbon, water, and raw materials. The resource quality and efficiency determine the strength of its financial performance. Reducing the expenditure on procuring new resources can improve the company’s profits by 60%.
Decreased Regulatory Interventions
Managing the ESG issues can decrease the regulatory pressures and the governmental actions that companies must face. It enables them to gain better strategic freedom and grow the company. The value creation at stake is higher when governmental policies have a say in them.
Higher Employee Productivity
A company or a business with a favorable ESG protocol can find it easier to attract and obtain quality employees, motivate them, instill purpose and optimize their productivity. Employee productivity and satisfaction directly correlate with shareholder returns and the company’s financial performance. Questionable labor relationships can lead to lower productivity, strikes, labor actions, and worker slowdowns that affect the supply chain and production.
Asset and Investment Optimisation
Having a solid ESG ensures capital allocation to sustainable opportunities like waste reduction, renewables, scrubbers, and more that avoid wasteful investments that do not payout in the long run.
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