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By Luis Miguel Vilatela, independent advisor and president of Aleatica‘s ESG Committee
Understanding, measuring, and creating an ESG strategy is also the best means to building a competitive business with a future, notes Luis Miguel Vilatela.
ESG Factors
These days, environmental, social, and corporate governance issues (known as ESG) are at the core of business. This is not just because they make up part of businesses’ long-term sustainability, but also because they are critical to their competitiveness.
Their importance has grown to the point that they are now crucial to obtaining financing and attracting investors.
Previously, some elements on the ESG spectrum were considered optional. However, today the approach is totally holistic, and they are at the center of business strategy aiming at achieving greater profitability and competitiveness.
Thanks to this change, the current nearsightedness is disappearing with the adoption of a long-term vision that goes beyond being trendy, and for its part, is a response to global challenges and each individual business’ goals.
IDB Invest Recommends
An international best practice that is constantly growing and which IDB Invest recommends is that in addition to annual reporting by businesses on ESG issues, it is also necessary to perform a materiality analysis. This assessment can function as a basis for establishing an ESG strategy for the company, and therefore, measure their progress in concrete terms.
This approach signifies an in-depth evaluation that helps the business define what variables are relevant for various stakeholders. And, in this way it sets metrics and guides the impact of the business’ operation on the planet and on society over time, in alignment with the business strategy.
It is precisely the materiality assessment that will determine the road map of the company’s priorities, such as the ESG strategy.
Therefore, annual sustainability reports—which should be based on the materiality analysis performed—have become another common international practice. In 2020, 96% of the 250 biggest companies in the world presented their reports, while in 1999, only 35% of them did so. Clearly, the world is moving in the right direction.
28% of Publicly Traded Companies Possess an ESG Strategy
Nevertheless, Mexico is still significantly behind on this measure. A publication by the Consejo Consultivo de Finanzas Verdes (CCFV, or the Green Finance Advisory Council) in November of last year revealed that 42% of publicly traded companies did not publish annual sustainability reports and only 28% of them have an ESG strategy.
The same study showed that of the businesses that issued reports between 2015 and 2019, none of them set specific indicators to monitor investment in each of the projects included in their reports.
This situation should be considered risky for companies. At the international and national level, investors no long want to commit their capital to organizations that will lose competitiveness compared to their peers. Today, it is in businesses’ best interest to create and execute an ESG strategy to diversify their financing options.
As with everything in life, what is not measured does not improve. For this reason, I think it is key that boards of directors prioritize these criteria by creating a committee to review and report to board meetings about the goals and progress on this area. By so doing, the board can offer the guidance needed to minimize risks and maximize opportunities for increasing the company’s profitability and sustainability.
Currently, businesses’ success goes hand in hand with building a future in harmony with the environment, the communities where we operate, and the highest ethical and transparency standards.
Understanding, measuring, and creating an ESG strategy is also the best strategy for building a competitive business with a future.
https://expansion.mx/opinion/2022/03/09/misma-ruta-para-negocios-competitividad-sostenibilidad
