Is ESG Really Worth the Trouble?

When QAD hosted a live webinar earlier this year to explore and analyze the challenges that have procurement leadership buzzing these days, the issue of environmental, social and governance (ESG) was a hot topic.

I know that many companies have fully embraced ESG — whether you’re a true believer or have given in to mounting pressure and, in some cases, legal requirements. But there are still some skeptics out there who look at the changes ESG would require in areas such as product design, supply chain strategy, transportation methods, material and resource consumption, and employee training — and resist transformation.

Despite everyone from KPMG to Deloitte suggesting a positive correlation between increased ESG and competitive advantage, some companies are feeling overwhelmed by its complexities and aren’t eager to take on the added investment in time, effort and — especially — money to implement a comprehensive ESG plan. Some want to know: Are the benefits really worth the trouble? Is the juice worth the squeeze?

Build Financial Resilience

In a recent Solution Review article, QAD Head of Sustainability and Digital Manufacturing Michael Ochi answers that question in an executive-level guide to ESG, and explains how the right approach can improve your business.

Michael says that ESG can be a lens through which you build resiliency by reducing waste, managing risk and strengthening your information-to-action pipeline. When you think of it that way, ESG evolves from a confusing concept to a helpful framework for improving non-financial factors that capture the interest of governments and investors alike. These non-financial factors can, in fact, lead to a bigger bottom line. Michael cited two studies pointing toward companies seeing above-average financial results after integrating ESG into their strategic plans.

Researchers “found a positive relationship between ESG and financial performance in 58% of the corporate studies focused on operational metrics or stock price with 13% showing neutral impact, 21% mixed results and only 8% showing a negative relationship,” according to a study published by NYU’s Stern School of Business. Meanwhile, international law firm White & Case reviewed 2,000 academic papers and reported that “70% of respondents find a positive correlation between higher ESG scores and financial returns.”

Basically, Michael says, don’t believe the doomsayers.

Will ESG hurt? Perhaps. Surgery often does. But when done correctly, it leads to better health. And the good news is: There are ways to turn a potential minefield of problems into a goldmine of opportunity.

Look to the Cloud

Michael offered a few examples of how ESG can be improved through established business solutions:

• Enterprise Resource Planning: Using a modern ERP with scheduling automation will reduce rushed purchase orders, production orders and customer shipments. This simultaneously decreases costs and carbon footprint per unit.
• Quality Management System: Integrated quality management reduces material scrap waste and includes risk management that can reduce the impact of internal and supplier-based environmental and social issues.
• Supplier Relationship Management: Collect and compare uniform product, service, and sustainability data from supplier assessments and third-party agencies to ensure your money is spent on partners aligned with your growth strategy.

Noteworthy here is that the QAD Supplier Management solution enhances supplier compliance with ESG objectives while at the same time improving performance and productivity by collecting and managing all supplier information and activities. QAD enables you to strengthen your operations through digitization and cloud solutions built for operational planning and execution, which can be leveraged to implement sustainable change.

Michael’s advice? Don’t wait for ESG to change from a differentiator to a qualifier.