ESG is quickly becoming a critical corporate mandate; this new research from International Data Corporation (IDC) shows that environmental, social, and governance issues have become a CEO-level topic for organizations worldwide. In a recent global survey, nearly three quarters of respondents considered ESG factors to be very important for the enterprise value of their organization—and nearly half indicated that sustainability considerations are very important for their tech buying decisions.
Given the impact ESG issues can have on enterprise value, business leaders are increasingly approaching sustainability through a purpose-driven strategy that aligns an organization’s normative goals and efforts with its need for positive operational and financial performance and risk management. However, as non-financial value drivers are gaining in importance, many organizations are struggling to find appropriate means to set targets and report on ESG metrics for the sustainability topics that matter most to their business and their stakeholders.
“Corporate value is no longer defined only by the creation of shareholder value. While investors remain an important and influential stakeholder group, other stakeholder groups such as regulators, employees, customers, and partners and suppliers must be taken into consideration when companies define their purpose and strategy,” said Bjoern Stengel, global sustainability research lead, Sustainable Strategies and Technologies at IDC, in a news release. “When it comes to ESG issues, they can affect stakeholder groups in different ways, creating different kinds of demands and requirements that need to be addressed.”
To manage sustainability topics effectively, organizations need to adopt a comprehensive view on the various stakeholders, both internal and external, that are impacted by corporate actions and shape the conversation around corporate sustainability efforts. Identifying material and other relevant ESG topics in the context of all stakeholder groups is essential for fully leveraging ESG as a driver for business performance and a hedge against sustainability-related business risks.
IDC has identified the following stakeholder groups and the sustainability issues they are most concerned with:
- Investorsare primarily interested in material ESG issues (i.e., topics that are of particular relevance to the organization’s industry) and will need sufficient disclosure on these issues to assess a company’s operational and financial performance to make an investment decision.
- Regulators/Lawmakersare working to develop ESG regulations, principles, and guidelines that meet evolving needs and slowly shifting the mandatory reporting and disclosure requirements from voluntary to more mandatory with some significant differences between the U.S., EU, and other parts of the world.
- Employeesare increasingly making their decisions to work for and stay with an employer based on its sustainability performance. Key ESG human and social capital topics must be addressed to create an optimal organizational culture that drives business results. Employee experience topics such as diversity, equity, and inclusion have become critical ESG issues and affect corporate performance.
- Customersare gaining in importance as stakeholders in the context of corporate sustainability, such as when it comes to the responsible and ethical use of technology and data. In addition, some notable generational differences are emerging with regard to environmental, social, and governance topics and their impact on brand value and buyer preferences.
- Suppliers and Partnersare becoming relevant stakeholders, particularly in the context of ESG-specific procurement requirements and sustainable supply chain management.
- Advocacy Groupsthat monitor and influence corporate behavior through activism are growing and represent a wide range of interests (environmental, civil and human rights, etc.).
“In order to address sustainability from more than a ‘doing good’ perspective and to drive business value, companies need to use appropriate metrics and KPIs to assess and benchmark their performance on ESG topics and align their sustainability efforts with their corporate purpose to achieve better operational and financial outcomes, lower risk, and have more engaged employees and a higher brand value,” added Stengel.
The IDC report highlights IDC’s global sustainability research and provides a holistic view on the various topics and stakeholders that shape today’s corporate sustainability discussions.