ESG – Ignore at your own peril

In today's digital era, environmental, social, and governance (ESG) issues have become crucial factors for companies, irrespective of industry or size. An ESG framework aims to assess the ongoing sustainability and performance of an organisation, considering risk management, key stakeholder expectations and an ever-evolving regulatory landscape. Stakeholders such as investors, employees, customers, industry, and others look at ESG practices as a source of sustained competitive advantage for organisations.

Investors prefer that companies report on ESG impacts. Consumers want to purchase from organisations with sustainable supply chains and a positive social impact. Employees want to work for organisations with a purpose. ESG has seen a meteoric rise in prominence for investors, employees, and businesses alike. Therefore, it is safe to say that a strong ESG strategy supported by robust management processes is now increasingly essential for achieving long-term business success.

But what is ESG and why does it matter to a business’s performance? Let’s break it down.

What is ESG?

Environmental (E): This is the pillar that often receives the most attention within ESG discussions: it comprises environmental risks and impacts, including carbon emissions, resource use, nature and biodiversity, and resilience and adaptation against risks of the climate crisis.

Social (S) Social examines the strengths and weaknesses of a company's management of relationships with employees, suppliers, customers, and the communities where it operates. These criteria include working conditions, operations in conflict regions, health and safety, employee relations, and diversity.

Governance (G) assesses the factors that help build trust in a company and what decisions are made around pay, gender equity / equal pay, bribery and corruption, and board diversity

The Impact of ESG on a business

The rise of ESG as a critical business focus stems from the increasing pressure on companies to operate with accountability and responsibility. Consumers and stakeholders now expect businesses to think beyond profitability and contribute positively to society and the environment. This, against a complex backdrop of a rapidly changing legal and compliance framework, heightened reporting requirements, increasing interest and pressure from stakeholders (including employees, and consumers), makes it vital for companies to embed ESG polices in their strategy - for the win. Overall, an ESG policy shows stakeholders that a company understands its risks and role towards the environment and society, while also encouraging responsible innovation that aim to solve for environmental needs of the future.

Like other corporate policies, an ESG policy creates a framework that works for the business within the context of its operations and industry. Looking inwards, the lighting industry needs to innovate to become more sustainable and introduce products that can solve for future needs. Therefore, at Signify, climate action has been at the centre of our sustainability strategy for more than two decades. We have shown our commitment to innovation and sustainability with breakthrough technologies like ultra-energy efficient lighting which bring to market products that meet the highest energy label, ‘A’, under the EU’s Ecodesign Regulation, and the Energy Labelling Regulation. Signify myCreation is another very sustainable range of lighting as it uses recyclable materials to 3D print unique & creative luminaries that are in line with circular design principals. We are also on a journey to eliminate plastics from consumer product packaging, adding a layer of sustainability to our consumer product ranges.

Another aspect of what an ESG policy can do is to improve risk management. Developing and maintaining the policy encourages businesses to understand the relationship between ESG issues and business activities. This helps to identify issues and mitigate risks on an ongoing basis, rather than be reactive.

An ESG policy communicates the company’s ESG position to stakeholders. Internally, the policy guides ESG efforts, working towards common goals and contributing to the company’s commitments, like for example, our sustainability programme, Brighter Lives Better World that is embedded in our purpose and is integral to our strategy and the way of doing business. Externally, a well-defined framework can help communicate a company’s ESG position to external stakeholders, such as investors, suppliers, customers, potential talent, and the public.  This helps build trust and transparency, which are increasingly demanded by customers. While communicating with partners and other businesses in the ecosystem, ESG policies are increasingly being seen as a strategic requirement by existing and potential customers committed to the sustainability of their own procurements and supplier base. Additionally, an ESG policy can be a competitive advantage, such as with investors looking for sustainability leaders or effective risk mitigators.

Overall, an ESG policy shows stakeholders that a company understands its ESG risks and role in the environment and society.