Sustainability and ESG

What is ESG?

ESG, usually synonymous with sustainability, stands for environmental, social and governance—the three pillars of a holistic, sustainable corporate strategy. These pillars form the foundation of an organization's responsibility toward society, the economy and the environment. ESG reporting is an important way for a company to demonstrate its commitment to core values.

ESG is a growing topic shaping both internal and external stakeholder expectations. It helps employees, investors, partners, clients and customers understand not only what a company does, but why. Over the last 10 years, ESG has grown significantly in global importance. What used to be known as corporate social responsibility now exists under the more holistic concept of ESG.

How can middle market leaders align ESG strategy with business priorities? 

Designed to help organizations navigate the multifaceted ecosystem of sustainability, our guide Building a sustainable future: Aligning ESG strategy with business priorities provides an extensive overview of today’s ESG landscape. The guide describes strategies, technologies, processes and data management techniques that foster responsible business practices.

Wherever your organization is on its ESG journey, our guide outlines a sustainability-focused approach to enhance brand reputation, stakeholder engagement and regulatory compliance, supporting long-term profitability and value creation.

Where is your organization on its ESG and sustainability journey?

Every ESG journey is different. RSM takes a tailored approach to guide you through the stages of ESG adoption and maturity, helping you create lasting value throughout your organization.

What is ESG reporting?

Organizations need to be especially mindful of voluntary and mandatory reporting obligations as they navigate this third wave of sustainability reporting. To measure and report on ESG performance, organizations should identify relevant ESG metrics, collect ESG data from various sources, and set clear targets aligned with their strategic goals. Utilizing established reporting frameworks and conducting materiality assessments help structure the reporting process, while data verification and integrated financial reporting enhance credibility.

Continuous improvement and stakeholder engagement are crucial for refining ESG reporting practices. Public disclosure and transparency in reporting, including peer benchmarking and compliance with regulations, foster trust and accountability. Periodic updates to materiality assessments, the achievement of ESG targets, and a long-term perspective on ESG reporting further support responsible and sustainable business practices. 

What do middle market leaders need to know about ESG?

ESG factors are increasingly affecting the business landscape, a company's reputation, access to invested capital and risk profile.

To thrive, businesses should integrate ESG practices and goals within their business processes; engage with stakeholders transparently and regularly; continuously assess and adapt their ESG strategies to remain competitive; and keep abreast of the evolving ESG regulatory environment.

What are the benefits of incorporating ESG and sustainability into a company’s strategy?        

Incorporating these considerations into its business strategy enhances the organization’s reputation and brand value, attracting environmentally and socially conscious clients, investors and talent. ESG integration mitigates risks related to regulatory compliance, environmental issues and ethical misconduct while promoting long-term value creation. It fosters innovation by driving responsible resource use and product development.

ESG strategies can also improve employee engagement and retention, reduce operational costs and increase access to capital as more investors prioritize responsible and sustainable investments. Ultimately, embracing ESG and sustainability principles not only aligns with ethical and societal expectations but also enhances a company's competitiveness, resilience and overall financial performance.

What are the challenges for ESG integration?

Integrating ESG factors into a company's operations and business strategy presents several challenges, including:

• A lack of standardized ESG reporting and metrics across industries and geographies makes it difficult to measure and compare performance accurately.
• Resistance to ESG integration may require significant cultural and organizational shifts.
• Ensuring data accuracy and reliability for ESG reporting.
• Achieving ESG goals often demands upfront investments, potentially affecting short-term profitability.
• Continuous adaptation to an evolving regulatory landscape and shifting stakeholder expectations adds complexity to the ESG integration process.

Successful ESG integration demands commitment, transparency and a long-term perspective to address these challenges effectively. The availability of ESG resources is key to the success of ESG integration. Most companies face a resource constraint and must strive to overcome the immediate challenge of capacity building.

How does ESG affect risk?   

ESG factors have a substantial impact on risk in multiple ways. By considering ESG risks such as climate change, resource scarcity and social controversies, companies can assess and mitigate potential threats to their operations and reputation. Failing to address ESG concerns can result in regulatory fines, legal liabilities and damage to brand value.

Additionally, investors and stakeholders increasingly consider ESG performance when making decisions, and companies with poor ESG records may face higher costs of capital or difficulty attracting investment. In essence, robust ESG practices can enhance risk management, reduce vulnerabilities, and position companies to navigate an evolving and socially responsible business landscape more effectively.

ESG also encourages companies to deepen their understanding of nonfinancial metrics, providing a more comprehensive view of their business and helping them identify and manage potential risks more effectively.

How can an organization centralize and manage ESG data efficiently to meet reporting requirements?

Navigating the complexities of sustainability reporting, risk management and data integration can be challenging. RSM professionals have experience with industry-leading solutions and ESG software that help organizations implement and enhance ESG reporting capabilities. RSM’s services are designed to simplify this journey, offering a comprehensive approach to identifying and optimizing solutions that align with your unique business goals and drive measurable ESG performance.

At RSM, we understand that every organization has different needs when it comes to ESG and sustainability reporting. Our professionals strive to integrate the technology you choose with your existing systems while scaling solutions with your evolving ESG goals. Whether you need to streamline operations, reduce risks, or enhance your ESG and sustainability reporting, we have the experience and knowledge base to support your journey.

Are ESG tax credits and incentives available?

Incorporating ESG tax credits and incentives into a sustainability strategy can help organizations finance programs and add value to their pursuit of sustainability initiatives. It’s crucial to incorporate tax perspectives into enterprise planning as early in the process as possible.  

Many businesses focus on decarbonization strategies, and tax incentives are available to help them monetize benefits. They can significantly reduce the costs of implementing decarbonization programs and enhance the return on investment.

Here are the key steps to supporting sustainability efforts with clean energy tax credits and incentives:

How do organizations get started with sustainability and ESG?

Those new to sustainability may opt to outsource the development and management of their sustainability strategy to an external provider. ESG professionals bring valuable experience in sustainability and management, a deep understanding of established practices and standards, and an external perspective that helps companies identify and address sustainability risks and opportunities they might otherwise overlook. Additionally, ESG professionals assist in creating a foundational sustainability strategy, implementing programs and guiding companies toward sustainability goals while tracking progress.

Building and sustaining an effective sustainability strategy requires a comprehensive ecosystem of processes, controls, systems and data. This includes internal processes such as ESG strategy development and implementation, along with external engagement with regulatory bodies and ESG rating agencies. Data from internal and external sources fuels this ecosystem, providing key insights that inform strategic decisions and foster ongoing improvement.

Sustainability is a continuous journey rather than a fixed destination. With each reporting cycle, companies assess their progress, learn from successes and challenges, and refine their strategies. Organizations that adopt this iterative, data-driven and integrated approach will transform their sustainability commitments into effective actions, creating lasting value and long-term growth.

Additional sustainability and ESG FAQs: