Why is ESG strategy crucial in today's business?

11/29/2024

In the competitive business world, the implementation of an ESG strategy is gaining importance as a key element in building competitive advantage, attracting investors, and for the needs of society and the environment, as best exemplified by the US car manufacturer Tesla. In the post, we will explain what this strategy is, show the successes of companies with ESG and what steps need to be taken to gain a competitive advantage through ESG and how to effectively implement it in a Polish company.

What is an ESG strategy?

In a nutshell, it is all the activities of a company that take into account its impact on the environment, people and governance. This comprehensive approach allows organizations to act responsibly while supporting the long-term development of the company.

ESG strategy bases its importance on three pillars:

Environment, all activities aimed at minimizing greenhouse gas emissions, managing waste, reducing resource consumption and protecting biodiversity.
Society focuses on relations with employees, customers, local communities and business partners. Examples include diversity policies or education and health efforts.
Corporate governance deals with transparency in management, business ethics, remuneration policies and anti-corruption.

Implementing an ESG strategy allows companies to fulfill legal requirements, but also to build a positive image among employees, customers and investors.

How does ESG strategy affect a company's competitiveness?

With a properly built strategy, companies can gain a competitive advantage in many areas, as Tesla did, gaining the lead by producing electric and autonomous cars. The impact is visible and determines market advantage, as business partners, investors and customers choose organizations that respond to real needs. How ESG competitive advantage can be gained will be illustrated by three examples of successful ESG companies.

Microsoft has implemented an ambitious ESG strategy, committing to a negative carbon footprint by 2030. The company is not only neutralizing its emissions, but removing more CO₂ from the atmosphere than it emits. In addition, Microsoft is investing in the development of sustainable technology, helping its customers reduce their carbon footprint. This builds an advantage in the technology market, where customers are increasingly choosing responsible business partners.

Nestlé is focusing on sustainable agricultural practices, working with suppliers to reduce greenhouse gas emissions and improve working conditions. The company has committed to achieving net zero emissions by 2050 and increasing the proportion of recyclable packaging. Through these measures, it is improving its reputation and strengthening relationships with customers and partners, resulting in increased market share.

IKEA has introduced an ESG strategy to achieve climate neutrality by 2030. The company is investing in wind and photovoltaic farms and promoting sustainable products. By doing so, it not only reduces operating costs, but also builds a positive brand image.

These examples show that ESG competitive advantage allows companies to stand out in the market, build customer loyalty and increase market share. In our country, we also have something to brag about. LPP, owner of brands such as Reserved and Mohito, has been focusing on environmental responsibility for years. The company introduces clothing collections produced in an environmentally friendly way, limits the use of plastic in packaging and invests in clothes recycling. Thanks to its ESG strategy, it attracts environmentally conscious customers and is building its position as a leader in sustainable fashion on the Polish market.

Żywiec Zdrój has been pursuing ambitious goals related to reducing its environmental impact for years. It is one of the first companies in Poland to commit to achieving plastic neutrality by recycling an equivalent amount of plastic waste for its products. Investments in innovative solutions and cooperation with local communities reinforce its image as a responsible manufacturer.

InPost, a leader in the courier delivery sector, is consistently developing its ESG strategy. The company is investing in a fleet of electric vehicles, minimizing the carbon footprint of its couriers, and is introducing innovative solutions to reduce energy consumption at its parcel machines. This is giving it a competitive edge in the e-commerce market, where customers increasingly value responsible logistics partners.

Why are investors paying attention to ESG strategy?

More and more investors see ESG as a strategic indicator of a company's long-term development. The strategy is gaining traction for several reasons:

Reduction of financial risk.
Attractiveness of green funds.
Long-term growth in company value.

Investors know that companies that ignore environmental or social issues can face heavy regulatory penalties or reputational damage. A well-planned ESG strategy helps minimize these risks.

There is a growing number of funds dedicated to sustainable investments in the financial market, with ESG investors preferring companies that apply responsible principles to their operations, which increases access to capital.

ESG strategy allows companies to better adapt to market and regulatory changes, which translates into financial stability and investment attractiveness.

Steps to implement an ESG strategy in a company

Steps to ESG are necessary to introduce corporate responsibility principles into a company.

What are the key steps that will create a key ESG business strategy?

Analysis.
Definition of targets and KPIs.
Education of employees.
Implementation of ESG reporting systems.
Collaboration with internal and external partners.

The first step is to analyze areas of the company in terms of ESG requirements. It helps to focus on priorities and avoid low-impact activities.

Good ESG goals should be measurable and embedded in a specific timeframe. Key performance indicators, or KPIs, should be precisely defined to easily monitor progress on the strategy.

Team engagement is the cornerstone of a successful ESG strategy, which is why it's a good idea to organize trainings and workshops, at training company Heuresis, to show employees how they can contribute to business goals in practice.

Reporting systems allow you to collect data and analyze the progress of your ESG strategy. They make it possible to create transparent and valuable reports for stakeholders.

Building relationships with customers, suppliers and local communities allows you to better understand their needs and implement responsible practices throughout the value chain.

ESG strategy is not only a tool for fulfilling regulatory requirements, as we can see from the example of specific companies, it is also part of enhancing the long-term value of the company. Implementing an ESG strategy supports business growth, improves competitiveness and enhances attractiveness in the eyes of investors.

With planned steps to ESG, companies can act flexibly, responding to social, environmental and business issues. This is how ESG competitive advantage becomes the secret to success in modern business.

The successes of companies such as, Tesla, Microsoft, Ikea, LPP, Zywiec Zdroj and InPost, show that responsibility is becoming a tool to build competitive advantage. And do you know what implementing an ESG strategy at your company should look like?