The question of return on investment, or ROI, can be a tricky one. Sustainability/ESG communications and strategies don’t often have an immediate measurable outcome. So, how can companies measure the success of their sustainability/ESG communications?
ESG is ultimately about the long-term sustainability of people — all the stakeholders in any business — as well as ensuring longevity of the business. Traditionally, companies have used the result of their reporting strategies to make business improvements and enhance measurement which will allow them to improve their reporting to better meet stakeholder demands, and ultimately improve investor, as well as rater and ranker outcomes. Not to mention, the actual bottom line benefits of reduced emissions, less waste, talent retention, etc.
While consistent and transparent communication builds trust and enhances reputation, companies should be increasingly wary that the further their sustainability/ESG messages stray from their business, they increase risk of wokelash. Underlying opportunities are not typically quick fixes, and results take time. But communication is important along the way. Value may be hard to measure through this lens, but communication is valuable.
Here are 6 ways you can frame the measurement of your sustainability/ESG communications:
Enhancing and protecting reputation
Communicating ESG goals and progress can enhance a company’s reputation among various stakeholders, including customers, investors, employees, and the broader community. Positive reputation can lead to increased brand value, customer loyalty, and trust, which can ultimately drive business growth and profitability. Even if your company is in a season plagued with not-so-great news, being honest and transparent in your efforts is more beneficial for protecting your reputation than not sharing anything at all. As the saying goes, what gets measured, gets managed. And increasing brand value and trust is more critical than ever. The latest Edelman Trust Barometer revels individuals believe businesses are not doing enough to address societal problems, including climate change and providing trustworthy information. So, find the truth in your ESG story and own up to it in your sustainability/ESG reports, presentations, and wherever your stakeholders may be.
Owning your ESG story — the good and the bad — is critical for managing risk. Integrating ESG considerations into business strategies can help identify and mitigate reputational, regulatory, operational, and supply chain risks. McKinsey recently reported that “in case after case across sectors and geographies, ESG helps reduce companies’ risk of adverse government action.” Foundationally, communicating your risks starts early with a material assessment. Having an understanding of what matters to your company and its key stakeholders, as well as demonstrating progress over time in addressing issues will help mitigate risk with stakeholders. Communicating your work towards reducing material risks should have a positive effect on your rater and ranker scores, which will drive how investors perceive you. It’s a virtuous circle.
Access to capital
Where does thoughtful information needed to make an investment end and ESG begin? We’d say your access to capital ties heavily to how well you’re able to communicate how you manage risk (above)! Many investors, particularly those focused on sustainable and responsible investing, are increasingly considering ESG factors when making investment decisions. In fact, it’s predicted that ESG assets could exceed $50 trillion by 2025. By sharing your company’s ESG goals and progress, aligning to comparable frameworks tied to future regulation, in places your investors are looking (your 10-K, Proxy, sustainability/ESG report, and website), your company may have greater opportunity to attract investors who prioritize sustainable practices and those that consider ESG factors in broad investments, potentially expanding access to capital. On the flip side, KPMG states that organizations not focused on ESG, finding capital will be more difficult and expensive to access.
Investing in environmental initiatives often leads to more efficient resource utilization, waste reduction, and operational improvements. By doing this, you make space for more efficient workflows and thus, more innovation from employees. Setting these initiatives and sharing the goals associated with them will signal to stakeholders that the company is focused on sustainable practices and staying competitive, which may attract sustainability-minded customers and savvy investors. Additionally, from an operational standpoint, energy efficiency measures or waste reduction initiatives can directly result in cost savings for the company.
Improved customer and community relationships
Sharing people-specific ESG stories, goals and progress is critical for fostering transparency and engagement with your customers and communities. Open and frequent communication on what your company is doing across mediums where this audience is — your website’s community page, relevant news stories, or social media channels — can lead to stronger relationships and a better understanding of expectations. According to Cision’s latest ESG Communication Trends Report, global searches for ESG have never been higher. Sharing this information regularly can foster a robust feedback loop that can inform business decisions, product development, and help identify new market opportunities.
Talent attraction and retention
Many employees, particularly younger generations, are increasingly seeking purpose-driven work environments and aligning their values with their employers. Sixty percent of employees want their CEO to speak out on controversial issues they care about — this includes global warming and climate change. Work with your HR or hiring teams to understand which ESG metrics and stories will help attract and retain top talent who are motivated by the organization’s commitment to sustainability and responsible business practices. Hiring employees that see and honor your companies progress and mission are likely to be your biggest evangelists. And engaged and motivated employees can positively impact productivity and innovation, which can ultimately contribute to financial performance.
Regardless of how you measure the ROI of your Sustainability/ESG communications, you shouldn’t assume an immediate return and your expectations should scale with your efforts. But stay consistent; holding your ESG/Sustainability communications to any level of ROI is critical for longevity in strategic communications planning.
Ideas On Purpose can help
For over 20 years IOP has been helping companies of all sizes with stakeholder-pleasing sustainability reports and impact communications. Feel free to email us to get in touch if you need help with yours.
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