Business models are being adapted for ESG compliance – Business Plus

There has been a significant shift in how companies are doing business as they strive to embed Environmental, Social and Governance (ESG), writes Harry Fehily of law firm Holmes.

While the growth of ESG is rooted in sustainability, the most urgent issue of our times, ESG considerations are now infiltrating every aspect of business models.

Smart, progressive companies are seizing the opportunity to demonstrate their ESG compliance, determined not to be left behind.

Talent attraction and retention, buyers’ enthusiasm for an ESG mindset, and investment gains are just some of the considerations driving the shift and focus.

Pioneering investment firms are showing that purpose and profit go hand in hand.  ESG has become the driving force of decision making in the private equity market. A previously perceived conflict of interest has been turned on its head; it is possible to generate a return for investors while meeting broader ESG goals. 

Sustainability indexes have been outperforming their peer benchmarks for quite some time. The recent global unrest and social and economic turbulence have created the perfect storm of a scarcity of resources and an increase in the cost of doing business.

For the Irish market, this means that businesses are now taking action on the issues which we all have been talking about for a very long time. And some investment opportunities are being turned down because of ESG concerns.

Corporate transactions

Incorporating ESG into your corporate strategy leads to sustainable value creation for your business, and our clients are demonstrating that every day of the week.

Eighty per cent of the transactions which we have dealt with this year have had ESG considerations at their core. It is a critical part of due diligence and an important consideration for investors.

Mere ‘greenwashing’ is no longer enough. Prudent investors recognise that climate change needs to be factored into their risk management and stress testing frameworks. 

Regulation

At the same time, we are seeing a parallel change in legal systems, as regulators introduce frameworks to help investors determine which economic activities and investments can be deemed environmentally sustainable.

Globally, regulatory bodies are adopting ESG mandates for company and investor actions. This has been an agenda item for Europe for a very long time, and now the US is stepping up and addressing these issues.

This has a knock-on impact on Irish companies that fall in the supply chain to larger US corporations.

We are witnessing a dramatic shift in regulation and standards-setting with regard to ESG which is demanding a rapid response from Irish companies which fall within the supply chain to US companies. 

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Incorporating ESG into your corporate strategy leads to sustainable value creation for your business, and our clients are demonstrating that every day of the week. (Pic: Getty Images)

Talent Attraction & Retention 

The phenomena of the ‘Great Resignation’ and ‘Quiet Quitting’ are already causing businesses a host of problems in attracting, motivating and retaining employees.

According to reports, nearly three-quarters of millennial employees say they would take a pay cut to work for a sustainable company that shares their ESG values. From a people perspective, failing to address ESG is not an option for successful businesses.

Accordingly, employers are looking towards alternative ways to attract and retain staff through engagement with interactive CSR projects, offering long-term incentive plans including share options and tying such incentives to staff projects which deliver organisational improvements, for example evolving the employer’s ESG footprint and those which impact on the corporate reputation of a business.  

All of these changing trends require boards, from a good governance perspective, to adapt their business model to make it ESG compliant. Adapting and embedding these new policies and practices across a company can be challenging with so many other internal and external changes at play.

However, the rewards are many, not least enhanced goodwill, brand and revenues.

Where to start? Look at your priorities, but ideally companies need a 360 solution in approaching their sustainable business objectives.

+ Harry Fehily is managing partner at Holmes. The law firm works with many clients with sustainable credentials such as John Mullins and Amarenco Solar; Denis Brosnan of BHSL; Future Energy Ireland, a new joint venture owned by Coillte and ESB; and WYLDE, the esports company co-owned by Usain Bolt. In helping clients on their journey, Holmes has strengthened its ESG strategy offering by partnering with training and consultancy firm Ingenium.

Image: Shane Costelloe, Partner – Holmes; Melissa Regan, Solicitor – Holmes; James Ring, CEO – Ingenium pictured to announce a partnerships between Holmes & Ingenium on an ESG product offering for clients. Pic. Brian Arthur