There has been a recent push in many regions for Environmental, Social, and Governance (ESG) regulation. While many firms might be tempted to meet the minimum requirement and just check the boxes, can ESG teams pitch compliance as a cost-saving division and not just a cost?
The current consensus of ESG compliance seems to be that it is just a financial burden on firms. For instance, Richard Singleton, Finance & Sustainability Director at Menzies, stated, “ESG compliance can be seen as a cost burden in boardrooms, primarily because it’s misunderstood as red tape rather than a strategic advantage.”
The way to solve this, according to Singleton, is by shifting the mindset to portray ESG as a risk reduction and future-proofing tool. “ESG is not just about sustainability in the environmental sense: it’s about making a business more resilient by addressing risks before they become costly problems. When ESG is integrated into commercial strategy, it enhances business value in terms of financial stability, governance, and risk mitigation – when this is communicated well, boards are more likely to engage.”
Unfortunately, the ESG compliance space is likely to hit a rocky patch over the next few years. While the previous years have seen a rise in regulations, such as CSRD and the SEC’s push on ESG reporting, a change in governments could slow the pace of change. This is already being seen. CSRD caused some dissent within the EU last year, with French politician Michel Barnier calling for a moratorium to pause the regulation’s implementation, and a similar call coming from Germany. While in the US, Trump has highlighted an interest in increasing drilling for fossil fuels.
Rahul Ramabhadran, ESG Data Analyst at IntellectAI, explained, “ESG is currently facing significant resistance from both governments and corporations. Globally, there is a trend of liberal governments being replaced by conservative ones that prioritize financial stability and fossil fuels.
“This shift has left corporations that aim to implement ESG practices without the necessary political support. Additionally, even corporate boards often prioritize shareholder profits above all else, making the case for sustainability a challenging one.”
The change in governments is impacting how financial institutions are approaching ESG. Since December, six US banks have withdrawn from the UN-sponsored net zero banking alliance (NZBA). These are JP Morgan, Citigroup, Bank of America, Morgan Stanley, Wells Fargo and Goldman Sachs. According to a Guardian report, analysts believe this is an attempt to ward off ‘anti-woke’ attacks from officials.
While it is easy for ESG teams to become pessimistic by these changes, it might not be as bad as feared. Tom Williams, group head of sustainable business strategy at Markerstudy, explained, “Almost all sustainability or ESG activity has, at some point, been viewed as a cost burden rather than added value. However, that attitude is certainly starting to shift as risk committees and boards reach out to sustainability teams for advice and guidance.
“So, the value beyond ESG compliance just being a cost is now starting to be recognised through the elevation of the importance of sustainability and related ESG topics. The next stage is to look beyond compliance as a punitive force and instead consider it as a way to add organisational value.”
For ESG teams that want to express the cost benefits of ESG compliance, IntellectAI’s Ramabhadran suggests changing the way it is positioned. “Increasing ESG compliance is often viewed as a reporting exercise where disclosure is more about satisfying regulators or investors rather than achieving the successful implementation of ESG measures or strategies.
“When ESG teams pitch sustainability using language that is familiar to shareholders, they are likely to get at least a hearing for their case. For example, if ESG is framed as an investment for the company rather than mere compliance, stakeholders are more likely to sit up and listen.”
How ESG processes can save money
The best way to pitch ESG compliance as a cost-saving function is to know how the processes can actually help a firm save money.
According to Ramabhadran, there are a few possible ways to achieve this. “One area where prioritizing ESG helps is attracting workers of the next generation. These workers are environmentally conscious and ethically principled. They are likely to choose a company that does good for the environment and people rather than a company that only chooses to maximize its profit. Having a good sustainability performance record not only draws such people to the company but also helps in retaining them, bringing down costs due to frequent attrition.”
Looking specifically at ESG compliance, Markerstudy’s Williams explained, “Businesses that have to satisfy EU sustainability directives are required to perform double materiality reviews and go through their supply chain to increase accountability and promote sustainable business activities. They may as well implement that process to a standard where they’re able to derive a benefit from it – cost or time savings, for example.”
There are other opportunities that come from operational efficiencies, Williams continued. In the UK, the Energy Savings Opportunity Scheme is mandatory for organisations with over 250 employees or those with an annual turnover of more than £44m and an annual balance sheet total in excess of £38m. “Those companies have to carry out audits of their sites to identify areas of energy efficiency and how improvements can be made. They can then proactively roll out the findings from those audits and benefit financially from the energy-saving measures put in place.”
Another way ESG compliance saves businesses money is by avoiding regulatory fines or reputational damage.
Menzies’ Singleton said, “The biggest way ESG saves firms money is through long-term risk reduction. Businesses that invest in ESG early can prevent reputational damage, legal issues, and inefficiencies that could be costly down the line. ESG is best seen as a framework for improving business operations, whether that’s through better governance, reducing waste, or improving workforce management.
“Companies that proactively manage ESG risks are also better positioned to secure investment and maintain business value over time. ESG is now closely linked to financial reporting and tax planning, meaning businesses that incorporate it effectively can also benefit from financial efficiencies. Rather than focusing on immediate returns, businesses should see ESG as a way to protect future valuation and stability.”
Advice for ESG teams
As a final point, each of the respondents offered some advice to ESG teams looking to change how the business perceives ESG compliance.
Singleton explained, “Speak in the language of the boardroom – in terms of risk, cost, and long-term financial health. It’s not enough to highlight ESG’s ethical benefits; the commercial case needs to be clear.
“ESG can be seen as an overhead, but the focus should be on aligning it with business strategy and demonstrating its impact with data. The most successful ESG teams work closely with finance, legal, and strategy teams to embed ESG into business planning rather than treating it as a standalone initiative. They’re much more likely to secure C-level buy-in.”
Williams added that if companies handle ESG compliance correctly, it will add to the bottom line as both customers and investors are asking for it. “Once cost savings have been captured, ESG can be framed as a market identifier providing new business opportunities, or better relationships with and more business from existing customers. Customers and prospects are aware that, in general, businesses characterised by strong sustainability or ESG activities tend to perform better, last longer and be more profitable than their peers.”
Ramabhadran also advised ESG teams, saying, “One of the key pieces of advice that would be critical for ESG teams is to ensure the data collected is reliable and business decision-grade. The quality of the ESG data and its interpretation would help integrate it into larger organization-wide decisions, thus disabling the view of sustainability in silo as a cost and instead looking at it as a necessary step to delivering organizational value.
“Lastly, with regulations on ESG emerging in various parts of the world, ignoring sustainability is going to get costly. The Volkswagen controversy is a stark reminder of what could go wrong when ESG is tossed aside for profits.”
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