How businesses can adopt good Environmental, Social, and Governance (ESG) practices and the benefits of doing so

The business and financial services community has witnessed the rise of sustainability in the last decade. Companies small and large have taken on ESG. In fact, 95 percent of the 250 largest companies worldwide report on corporate sustainability activities.

Meeting societal, environmental, economic and future generation needs – the four pillars of sustainable development – is now critical for businesses to succeed. So, what are the benefits of committing to sustainability, and how can the financial sector do so?

The benefits of committing to sustainability

There are three main reasons why businesses pursue sustainability goals: revenue and cost optimization, risk management, and brand and reputation management. But a fourth reason is becoming just as prevalent – the retention and engagement of top talent.

  1. Revenue and cost optimization

Businesses are naturally aiming to keep costs low and revenues high, and it is possible to achieve both objectives through certain approaches to sustainability. If an organisation can reduce its water and energy usage, then its water and energy bills will also be lower. When we reduce our waste, the cost of having this waste removed or processed also reduces. Similarly, by considering if products or services tick the following boxes, it’s possible to cultivate more innovative solutions and new business models that add value for both society and businesses:

  • last for future generations?
  • create social cohesion?
  • protect the environment?
  • contribute towards economic wellbeing?
  1. Risk management

Before the word “sustainability” came into widespread use, the word “risk” encompassed many sustainability considerations. Identifying and mitigating social and environmental risks helps reduce litigation, compliance costs, and the need for pollution cleanup. Companies can avoid the expensive costs associated with lawsuits by following ethical standards in the labour supply chain, using cradle-to-cradle principles in manufacturing, and more.

  1. Brand and reputation management

The jury is in regarding consumer concern for sustainability. A good image goes a long way. Sustainable companies are better able to maintain brand loyalty. 46 percent of consumers are buying more sustainable products as a way to reduce their impact on the environment, according to a 2024 survey.

  1. Employee retention and performance

Not only have customers shown a concern for people and the planet, but employees have as well – over two-thirds of staff want to work for a company that is trying to have a positive impact on the world. Companies can attract and retain talent by showing that sustainability is integral to their business model, by attaching bonuses and financial rewards to sustainability results, and by creating opportunities for employees to engage in the issues. If sustainability isn’t visible in a company, employees are more likely to leave, as one-third of employees have resigned from their jobs because they felt the efforts by their company to tackle environmental and social challenges were insufficient.

Sustainability tips for professionals in the financial services sector

There are numerous initiatives to render the financial services industry more sustainable. Long-term institutional investors such as pension funds and insurance companies are increasingly seeing the potential for minimising ESG risks and gaining from ESG opportunities by building green and socially responsible portfolios.

Similarly, commercial and retail banks are increasingly bringing ESG considerations into lending policies and in designing sustainable financial products. Depository banks such as Climate First Bank in the United States and fintech neobanks such as Green Got in France are laser focused on supporting a just ecological transition. Amid global crises, the COVID-19 pandemic and resultant economic challenges, climate finance has continued to grow in an upward trend (Figure 1). In 2022, it reached USD 1.46tn according to the Climate Policy Initiative, showing resilience and growth despite heightened levels of inflation and global conflicts.

Figure 1: Global Landscape of Climate Finance 2024, 2018-2023 (Source: Climate Policy Initiative).

There are even sustainability aims for stock exchanges. For example, the Sustainable Stock Exchanges (SSE) is an initiative aimed at exploring how exchanges can work together with investors, regulators, and companies to enhance corporate transparency (and ultimately performance) on ESG issues and encourage responsible long-term approaches to investment. In April of this year, China’s three major stock exchanges (Shanghai, Shenzhen, and Beijing) issued new guidance mandating sustainability reporting for larger listed entities. The guidelines adopt a “double materiality” approach, addressing both financial and societal impacts of companies’ activities. The guidelines cover: climate change, social responsibilities, governance, and supply chain management, and are largely aligned with global frameworks like the Global Reporting Initiative (GRI) Standards. The initiative aims to integrate sustainability into business strategies while easing compliance for companies operating across multiple jurisdictions. Here are 5 practical tips for professionals in this sector:

  1. Use frameworks to gauge sustainability progress, including the SURF Framework (Supply Chain, User, Relationships and Future Generations).
  1. Join professional networks, including dedicated Slack groups such as these, that address sustainable business and finance.
  2. Attend conferences that address sustainable finance and business.
  3. Read and contribute to ESG investment publications.
  4. Adhere to sustainable finance, investing, and accounting standards, frameworks, and guidelines, such as:
  5. Due Diligence 2.0 Commitment
  6. The Global Reporting Initiative (GRI)
  7. The Principles for Responsible Banking (PRB)
  8. The Principles for Responsible Investment (PRI)
  9. The Greenhouse Gas Protocol (GHGP)
  10. The Partnership for Carbon Accounting Financials (PCAF)
  11. The Equator Principles
  12. The Private Equity Council’s Guidelines for Responsible Investment
  13. Taskforce on Inequality-related Financial Disclosures (TIFD)

1 Climate Policy Initiative, Global Landscape of Climate Finance 2024. Retrieved: 26 November 2024. Available from:  https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2024/.

Marilyn Waite is the author of Sustainability at Work: Careers That Make a Difference. Marilyn has worked across four continents in low carbon energy, climate modeling, and investment. She currently leads the Climate Finance Fund and teaches ESG Strategies at Sciences Po and other universities across the globe. Find out more at marilynwaite.com. 

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