The discussion on Environmental, Social, and Governance (ESG) has not died out, as it only became more relevant within the Finance department, as the global conversation around it continues to evolve.
The latest edition of the Ipsos ESG Council report dives deep on the current landscape and the challenges faced by organisations, including the question on how one can measure the return of investments when it comes to this matter.
Ipsos enumerates some of the best practices that can guide companies in effectively assessing the impact of their ESG investments:
Integrate ESG Metrics into Financial Decision-Making Align ESG and Financial Objectives: Ipsos recommends to begin by embedding ESG metrics alongside traditional financial metrics in the investment evaluation processes.
This involves including sustainability factors in capital requests and project proposals, ensuring that every initiative is assessed for both its financial return and its environmental or social impact.
Collaborate with Finance Teams: According to Ipsos, business leaders must work closely with the finance department to develop methodologies that capture the financial benefits of ESG activities, where projects allow. This data can be used to build out the business case for sustainability initiatives, demonstrating how they contribute to the company’s bottom line.
Utilise Both Quantitative and Qualitative Measurements Employ Standard Financial Metrics: Organisations can use traditional metrics like Internal Rate of Return (IRR), payback periods, and cost savings to quantify the financial returns of environmental projects, such as energy efficiency improvements or waste reduction initiatives.
Incorporate Non-Financial Analysis: Ipsos says organisations must recognise that not all ESG benefits are easily quantifiable. Factors like corporate reputation, customer loyalty, employee engagement, and risk mitigation play significant roles in long-term value creation. Customise and then utilise reputation measurement programs, engagement surveys, as well as qualitative assessments to capture these less obviously tangible benefits.
Leverage External Frameworks and Standards Adopt Recognised Reporting Standards: Implement existing frameworks such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), or the Task Force on Climate-related Financial Disclosures (TCFD) to structure ESG reporting. While ESG reporting standards continue to evolve and vary widely across markets, they do provide commonalities and improve the comparability and credibility of the data being collected, and therefore, ROI processes.
Communicate the Business Value Internally and Externally Educate Internal Stakeholders: Ipsos recommends that organisations conduct ongoing education initiatives within the business to shift the perception of ESG from a cost centre to a value generator. Highlight success stories where ESG initiatives have led to cost savings, revenue generation, or risk reduction.
Engage with External Stakeholders: Solicit feedback from customers, investors, and community members about ESG efforts. Continually build the evidence base and organisational understanding how sustainability influences purchasing decisions or investor confidence.
Embrace a Long-Term Perspective Focus on Long-Term Value Creation: Ipsos says companies must acknowledge that some ESG investments may not yield immediate financial returns but are essential for long-term business resilience and competitiveness. Investing in areas like employee well-being, community development, or sustainable supply chains may have delayed but substantial payoffs.
Anticipate Regulatory and Market Trends: Stay ahead of evolving regulations and market expectations regarding ESG performance. Early adoption can provide first-mover advantages, such as securing access to limited resources or strengthening of corporate reputation.
By integrating ESG considerations into financial decision-making, leveraging established frameworks, communicating value, and focusing on long-term outcomes, Ipsos believes companies can more effectively assess and enhance the returns on their ESG initiatives.
