There is a reason that “bottom line” means both “the final total on a balance sheet” and “the most important thing”. For a business, profits are everything. One might argue that to be a profit-first company is to be a viable business. But the winds of change are challenging this singular focus.

ESG is important to today’s regulators, investors, shareholders, and even consumers. All call for businesses to give proof of a corporate culture that puts communities first. I think it is safe to say that we all believe that businesses must now have a positive impact on society. They must protect the environment by rationalising their energy use and minimising waste and carbon footprint.

They must treat employees justly, embrace diversity and inclusion, and engage in social programs. Moreoever, they should put in place governance standards that include checks and balances, transparency, and ethical practices. 

Sustainability COPs

Arab Gulf nations all have ESG programs. Passages on UN Sustainable Development Goals (SDGs) are now standard in government whitepapers. Now that the right thing to do has been recognised as the smart thing to do, ESG is taking off.

In part this is driven by consumers who are out for more than just the best deal. Before engaging with a brand, the modern shopper looks at the impact it has on the environment and what its leaders are doing to slow and reverse the effects. They find out if it treats its employees fairly and how it engages with the community. And they want to know how strong its governance standards are because these will determine whether products are safe, whether customer data is secure, and more.

There are also some strong economic incentives at play. Environmental action can lower operating costs in the long term. Inclusive workforces have greater potential for problem-solving, creativity, and innovation. Therefore, robust governance has a range of benefits, including keeping regulators satisfied and therefore avoiding legal penalties. 

These are not arbitrary predictions. In January 2023, the GCC Exchanges Committee published its ESG Disclosure Metrics – 29 standards based on the World Federation of Exchanges and Sustainable Stock Exchanges Initiative. The standards cover carbon emissions, energy and water usage, the gender pay gap, diversity and inclusion, data security, and a range of other ethical areas. Analysts around the world are positing that ESG-focused companies can create tangible value, lower capital costs, and even boost share price.

There’s Always a Critic

But for all the cases made for ESG, it still has its share of sceptics – sceptics who say ESG is a fad that harms financial performance and profits. In fact, we now have enough data to strongly associate ESG with better financial performance and lower risk. It is also worth mentioning that sceptics tend to talk about ESG in generic terms that imply it means the same thing everywhere. It does not.

ESG practices vary across industries. But there are certainly commonalities in ESG benefits. Both an ESG-focused retailer and an ESG-focused manufacturer can expect long-term financial sustainability. Both an ESG-focused bank and an ESG-focused cloud provider can look forward to more effective risk management. Business performance, competitive advantage, and growth will come to a start-up with a sound ESG strategy just as they will to an industry mainstay with a similar approach.

When it comes to expectations, we again see commonalities. While looking for different details, investors will scrutinise the ESG credentials of a retailer just as hard as they will those of a FinTech. And regulators’ inspections for both an insurance company and healthcare provider will include ESG elements.

The Future of Proof

ESG is not a trend; it is a gamechanger. ESG-conscious consumers want to do business with ESG-conscious brands. Businesses have always catered to their customers’ values. Marketing arose as a way to identify those values and craft messages to convince prospects of the compatibility of offerings with expectations. Those expectations used to be centred on price, quality, ease of use, or as economists would call it, “utility”. However, utility is a complex term encompassing a range of hard and soft factors. A product or service that carries a benefit beyond its immediate consumption might have utility to a modern consumer.

I want to elaborat that this shift towards ESG presents both a challenge and an opportunity for businesses. It’s no longer enough to pay lip service to sustainability and social responsibility; companies need to integrate these principles into the very core of their strategies.

Employee well-being, for instance, should not be an afterthought but a key driver of engagement and performance. Similarly, there is enormous potential for growth and value creation in underserved markets, and businesses that fail to recognize this could be left behind. As the emphasis on ESG grows, businesses have a golden opportunity to reevaluate their existing mechanisms and make necessary changes. Those who embrace this shift towards ESG will reap the benefits, while those who resist it risk becoming obsolete.