How ESG can create value for privately owned businesses

The value case for ESG integration is further strengthened when we consider that companies with low ESG engagement often have poor due diligence processes. In addition, refusal or reluctance to adopt a sustainable approach will limit investment opportunities. 

However, with the connection between ESG efforts and risk-adjusted performance not always linear, taking a long-term perspective means leaders are better positioned to reap enhanced financial returns. As ESG performance evolves, leaders must regularly revisit their due diligence practices to ensure that sustainable strategies are kept on track. So what can a well-defined ESG strategy do for privately owned businesses, and, significantly, how can it add value to the bottom line? 

Operational efficiencies

Identifying operational inefficiencies is often the first port of call for any privately owned business. The most easily quantified benefit of sustainability is reduced operating costs such as waste, energy and water use. The ability to measure reductions in greenhouse gas emissions is also improving as new data and tools become more available. Other areas to consider include improving productivity and the quality of products and services. Extending this thinking to supply chains where ESG risks and opportunities are often more opaque and the ability to add value more complex is a challenge. However, creating a roadmap of how to achieve this can add real depth to operational efficiencies achieved. 

Mitigate reputational risks 

As ESG issues become more critical to investors, shareholders and customers, the risk to reputation becomes more severe. Reputational risks to organisations include poor environmental practices, such as pollution or deforestation. In addition, weak due diligence can open the door to fraud and cyber-attacks that directly impact employees and customers. The supply chain is a further area where poor ESG can lead to human rights breaches. All of these situations have a negative impact on a company’s reputation that can compromise performance. Conducting a gap analysis to identify potential risks across all ESG areas can help strengthen strategies and mitigate reputational risks. 

Opportunity identification 

Focusing on sustainability can lead to innovative transformation opportunities for the business model, including products, services, the technologies deployed and management techniques. Using ESG as a framework to improve risk management can help mitigate business interruptions from significant incidents, enhancing supply chain management and protecting a company’s social licence to operate.  

A further benefit of moving to a more sustainable business model is increased efficiencies in systems, operations and enhanced productivity This includes an uplift in resource efficiencies, improved supply chain transparency, and higher employee productivity and retention. In terms of new ESG-related product and service growth opportunities, developing sustainable products and services or enhancing and leveraging the sustainability of existing products to reach new customers or markets can improve the brand and boost customer satisfaction. 

The business case for practising responsible business is well-defined, with methodologies and tools to make it simpler and more accessible increasingly available. As sustainability engagement gains traction and moves from risk management to opportunity and value creation, privately owned businesses should carefully consider what their ESG performance now yields to the bottom line. 

If you would like more information or you require assistance with sustainability reporting, please contact your usual Forvis Mazars advisor or alternatively our sustainability experts via the form below or on:

Author: Bongiwe Mbunge, Forvis Mazars

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