Why ESG matters and why it is important for your business?

by Find My Programme on Mar 10, 2023

Why ESG matters and why it is important for your business?

Changing importance of ESG


With the growing presence of ESG, companies realize that releasing sustainability reports and engaging in standard ESG practices such as improving ESG disclosures or holding a sustainability-focused investor relations event, is not enough to win over investors and consider itself high ESG performers. On the contrary, such “box ticking” practices and promoting a culture based on adopting standardized activities, push the investors away raising a wave of criticism, negative reactions and demand for rapid change.

To avoid such push-back, the attitude toward ESG has to change. ESG is neither a tool for protecting a company’s reputation nor a set of benchmarks or best practices to be bluntly implemented in order to see long-term benefits. To see real change for a single company means working on an ambitious and differentiated, company-made ESG strategy that will take the business to the next level.

Naturally, the bottom line is committing to efforts attempting to reduce waste, strengthening relationships with external stakeholders, and improving risk management and compliance, however, the question is how to turn these good business hygiene practices into something more and why it matters from a more granular perspective.


ESG and its importance for the business


Building the right business strategy is a fundamental driver and integrating an ESG strategy into it is a motor for achieving real results. Realizing the effort needed and the complexity of such integration is something that effectively cools the initial excitement down. As with any major transformation the toughest part is challenging own assumptions and being prepared to strip them down and rebuild with all its consequences. Not all businesses are either mature enough or prepared subject-wise to face the challenge.

This is why companies worldwide search for ESG consultants and experts with the right knowledge and competencies to receive proper guidance or choose to invest their own resources to educate their internal staff. Programmes such as Diploma in ESG offered by The Corporate Governance Institute, a partner of Find My Programme, offer concise courses, rich in content allowing individuals to either build their know-how from the scratch or advance their knowledge and grow their expertise.


Why does ESG matter?


To answer the question of why ESG matters, it is fundamental to realize the changing landscape of ESG - a concept that rapidly evolved from something that was considered a status to a necessity and expectation.

In a world increasingly shifting its interest in ESG practices, which progressively judges organizations on their ESG performance and where data is used by investors to analyze their investment, companies are being urged to clean their acts and modify their approach (Serafeim, 2020).

Research conducted by Serafeim and his colleagues shows that an ESG focus can help management reduce capital costs and improve the firm’s valuation. Driven by the investors who feel more confident to put their resources in companies with stronger ESG performance, larger pools of capital are available to those companies with established ESG practices.

Another argument for the evolving ESG landscape and its growing importance is the fact that encouraging more transparency on ESG matters can help companies protect their valuations as more global regulations and governments mandate ESG disclosures. A good example here can be a stock market reaction to the announcement made by the European Union on broader disclosure requirements resulting in a positive reaction to firms with strong ESG disclosure and a negative to those with weak disclosure (Serafeim, 2020).

Implementing ESG strategy has also an influence on the board leadership. So far it was quite uncommon to get board directors involved in ESG efforts, despite the fact that initiated ESG changes involve large operational and strategic shirts. The fact is that the more investors with more assets under management are committed to ESG investing, the more voting power there is to effect changes. As a result, companies observe more shareholder satisfaction with board leadership and fewer negative votes against directors, and challenges to executive-pay initiatives.

Furthermore, by initiating substantial changes, such as ESG strategy integration, companies gain enough encouragement to drive further transformations including the board itself. Proposals to improve diversity on gender, race, educational and professional qualifications on the boards were welcomed and appreciated.  As mentioned by Serafeim (2020) nearly 63% of voting shareholders at Cognex, approved a proposal to diversify the board, while a similar measure at the real estate company Hudson Pacific Properties received 85% support.

Finally, incorporating ESG practices is a crucial aspect of a company's long-term strategy as it aligns the vision of management and stakeholders. When Paul Polman took over as the CEO of Unilever, a company that was struggling in the consumer goods industry, he discontinued providing quarterly earnings guidance and emphasized his dedication to long-term strategy over short-term profits. As a result, investors who were focused on short-term gains withdrew their support, leaving space for those investors who were willing to be patient and invest for the long term (Serafeim, 2020).


Regardless of the motivation, whether it is attracting investors, response to the increasing number of governmental regulations, demand for adjusting leadership practices, bringing diversity on a board level or forecasting the future, the presence and importance of ESG grows. This pushes companies to take concrete actions and waiting for further developments is definitely not one of them. What we see is that companies quite often wait too long to initiate their actions. Whether this is provoked by fear of the unknown, lack of knowledge, the necessity of extra investment, hope that change is not going to happen or pure ignorance, one is for sure- ESG marks its presence across the globe and it is not a temporary trend but a new reality and the future. The sooner this is acknowledged, the more space it leaves for the company to wisely plan and perform ESG practices and integrate ESG into business strategy. Waiting for too long means rushing things through, not having full control over the process, not having the right (educated and committed) people involved, lack of structure and dedication and these lead to nothing more than failure.



Serafeim, G. (2020) “Social-Impact Efforts That Create Real Value.” Harvard Business Review, Available on: https://hbr.org/2020/09/social-impact-efforts-that-create-real-value (Accessed on 8 March 2023).

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