Why ESG is especially important in a recession
Published: 24 Apr 2023
ESG stands for Environmental, Social and Governance, which enables organisations to monitor the impact of a business based on these three factors.
Since the pandemic and the war against Ukraine threatened the economic stability of the UK, fears of a recession have grown.
In November 2022, a CEO outlook report published by KPMG, shared their view that ‘businesses embracing ESG are best able to secure talent, strengthen employee value proposition, attract loyal customers and raise capital.’
During these uncertain times, many businesses will be tempted to take a back seat in their ESG initiatives. Yet, companies that continue to invest in ESG during economic downturns are more likely to ‘maintain strong environmental, social and governance values while also achieving solid stock performance and shareholder returns,’ according to Investor’s Business Daily.
A mild recession?
There has been some optimism since 2022, with some suggesting that inflation ‘may not be as persistent and stubborn’ as previously feared. According to a recent publication from the Financial Times, a 10-day period of data collected in February 2023 suggests that the UK economy is showing an unexpected level of resistance and inflation is lower than expected. As a result, economists are now predicting a shorter and milder recession.
However, there is a strong case that ESG is even more important during an economic downturn.
Here are four reasons why:
1. Risk mitigation
In the midst of the current energy crisis, protection against future price shocks has never been more critical. The crisis has amplified societal, environmental and economic challenges and businesses who are able to manage, predict and prepare for unprecedented circumstances are more likely to thrive.
2. Cost optimisation
Many businesses will look to cut costs during uncertain periods, which often means neglecting their ESG obligations. In fact, Deloitte claims that ‘the likelihood of an organisation undertaking cost cutting initiatives has increased by 74% since the global pandemic.’
However, ESG initiatives can actually help to reduce costs. By capturing Scope 1 and Scope 2 emissions data, businesses can identify cost savings opportunities. They can also prevent energy wastage, additional waste disposal, and penalties, which all incur higher costs.
3. Talent retention
Retaining top talent is crucial to ensuring that businesses can navigate a volatile economy and also helps to reduce the costs of recruiting new talent. Additionally, it provides a competitive edge in attracting candidates that will drive the organisation’s success, as millennials and Gen Z in particular are interested in working for companies that share their sustainability values.
4. Accelerating growth
EGS initiatives can provide a framework for new revenue streams as stakeholders and customers search for sustainable products and services. According to a publication by PwC, ‘83% of consumers think that companies should be actively shaping ESG best practices.’
ESG is an essential component of business success and is important to maintain, especially during these turbulent times.
ESG and cost reduction do not need to be at odds with each other, they can work symbiotically. Companies that remain focused on their ESG strategy are more likely to maintain profitability and sharpen their competitive edge.
We have recently launched a carbon solutions service, which enables businesses to reduce both carbon emissions and costs at the same time. The primary benefit is that there is no direct cost to the business – the fee is based on actual gains, not projections. For many clients, the process is self-funding and can even be profitable.
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