How Young CEOs Can Integrate Sustainable Investing Into Their Business Models
More recent generations have shifted to become much more focussed on sustainability than previously.
Impact investing is where investments are made in companies that then lead to measurable positive social and/or environmental outcomes as well as generating market-rate returns on that investment.
A McKinsey report (Five ways that ESG creates value) reported that in 2023, global sustainable investment was $30 trillion, a massive 68% increase since 2014. The same report notes that those firms that invest in environmental, social and governance (ESG) obtain higher equity returns.
Millennials and subsequent generations are concerned about sustainability and are more likely to want to work for a company that has a strong policy on ESG. They are also more likely to buy products that have been produced sustainably. In fact, an IBM Institute Survey for Business Value found that 62% of consumers would be willing to change their purchasing habits to reduce environmental impact.
From this, it is clear that a company that embraces sustainability has a better chance of differentiating itself and becoming an attractive proposition to the buyers of its products and services.
A Morgan Stanley report noted that in the five years to 2024, sustainable funds achieved a median performance of 4.7% better than more traditional funds, thus showing the appetite for companies that include ESG in their business models.
So, how should a young CEO integrate sustainability into their business model?
If a CEO’s firm is a start-up, it does make an investment in ESG slightly easier because they can start from the ground floor so that the company is based on sound ESG principles. However, ultimately, even in established companies, it just takes the leadership, desire and perseverance to incorporate ESG into almost any company.
Therefore, there are a number of steps that a young CEO needs to take to invest in ESG:
- Set clear ESG goals
- Define the measurements to track ESG performance
- Engage all stakeholders so they understand how ESG will impact the company
- Prioritise sustainability across the entire company
- Ensure that sustainability is communicated across the company and to its consumers
- Ensure that all decisions incorporate ESG
Having a clear and well communicated ESG policy will also help to attract top talent who are equally invested in sustainability. Properly implemented within a company sustainability is also able to show consumers the company is ethical and, therefore, can be trusted with its products and services.
However, the driver of the success of sustainability in a business environment is the strong leadership of the executive team. What they measure and check is what the firm’s employees will concentrate on providing. So, it is vital that the CEO considers what measurements will clearly track the firm’s commitment to sustainability and immediately flag any deviations from that commitment so they can be resolved to the satisfaction of all stakeholders.
A McKinsey article notes that two-thirds of a company’s ESG footprint lies with suppliers. Therefore, the first step to investing in ESG should be exploring the young CEO’s firm’s buying practices and its supplier ESG policies.
