In the past decade, opponents of ESG have relied on the argument that ESG is at odds with a company’s profitability and “bottom line’’. However, as implementation of ESG strategies and metrics grow, data on their impact is increasingly accessible, with conclusions widely supporting the legitimacy of ESG. According to IBM’s recent study, “the argument that ESG hampers a company’s ability to boost the bottom line is more than a myth — it’s misinformation that leads to poor business decision-making.” 

While incorporating ESG considerations is a complex process, IBM cites an important distinction between companies that succeed at ESG strategies and those that do not: motivation. IBM concludes that, when viewed as a vehicle for driving business value rather than a narrow reporting exercise, ESG generates insights that create opportunities and boosts company performance. As companies that are ESG leaders are 43% more likely to outperform on profitability, the excuses for ESG avoidance are dwindling. 

Despite the study’s encouraging findings, it also notes that many organizations are struggling to put their ESG propositions into practice. IBM identified inadequate data as the greatest obstacle, with only 10% of companies having made significant progress towards their ESG goals. Without access to accurate data, executives are finding it challenging to make informed decisions and predict which plans will improve outcomes and deliver high ROI. Limitations on data proves to be a significant sticking point in development, and business leaders are taking note, with more than 70% of executives acknowledging that ESG needs to be a higher priority for organizations. 

However, as ESG becomes increasingly accepted in corporate strategy, it faces a new struggle of consumer hesitancy, with only 20% of respondents stating that they trust the statements companies make about environmental sustainability, down from 50% two years ago. While this problem may appear complex to remedy, there are two main solutions: accountability for sustainability claims, and authenticity in ESG goals. As the IBM study concluded, the principal determinant for the success of ESG policy is the legitimacy of its usage. Communicating to stakeholders your ESG goals, actions and data-backed and verified progress are essential to building and retaining trust. 

© 2023 Clear Strategy Co.

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