Founders with mission-driven companies take justifiable pride in creating change in their companies. With a strong mission guiding their business decisions, they make a positive impact on the environment and their communities, create innovative products and services, and give employees an opportunity to do meaningful work.
But recently, environmental, social and governance issues have been gaining traction, both in the press and with investors. At first blush, ESG may seem similar or even identical to having a mission — after all, both are concerned with creating a positive impact through company actions.
Although they support each other, they serve distinct purposes, and it's important to understand the difference.
ESG vs. mission-driven
Mission-driven refers to a purpose beyond simply maximizing profits. Mission-driven companies are committed to making the world a better place through their products, services and actions, and their business decisions reflect this commitment.
ESG, on the other hand, is a framework for assessing the impact companies have on their employees, customers, communities and the world at large. Broadly, this includes how well the company meets environmental standards; how well it promotes positive social outcomes, both inside and outside the company; and how well the company is run.
Notably, ESG looks beyond the company itself to the environment in which it operates, evaluating how the company is performing in relation to its peers; working conditions throughout its supply chain; the impact of its packaging and other waste; the well-being of employees; the diversity of employees and suppliers; integrity in its business models; the accessibility of its products and services; and the extent and type of corporate activism/lobbying that it engages in.
While a mission drives change through a company's actions, ESG evaluates those actions within the broader context of its supply chain and community, driving a strategy of ongoing improvements throughout its ecosystem.
Consider food tech companies that make plant-based meat substitutes. Often, the founders of these companies are passionate about the environment and finding more sustainable ways to feed people. Their mission frequently revolves around providing consumers with healthy, environmentally friendly alternatives to beef, pork and chicken without the extreme water usage, greenhouse gas emissions and methane production associated with the traditional meat industry.
Thanks to values-driven marketing and tasty products, profits and these companies' market share are growing every quarter. With a clear mission and a healthy bottom line, do these companies also need to pursue ESG strategies?
A better world — and a better bottom line
Every mission-driven company wants to be sure it is living up to its objective to do good in the world; those companies also want to attract investors and customers. ESG can help on both counts. By enabling companies to ensure their operations reflect their values and mission, ESG helps them attract aligned investors, customers, partners and employees.
Take the following examples:
- ESG helps to mitigate risks, both systemic and regulatory. In food tech, companies might need to adhere to different regulatory requirements regarding labor, sustainability, packaging, etc., depending on the jurisdictions where they operate or hope to operate in the future. Understanding and adhering to these requirements means more potential business opportunities and less risk of fines or reputational damage.
- ESG helps companies reduce operating costs and increase profits by improving resource efficiency, reducing waste and enhancing innovation. A food tech company might use feedback from its ESG materiality assessment to look for ways to reduce water and raw material usage, for instance, and to find more environmentally sound alternatives to traditional packaging.
- ESG makes companies more appealing to workers. Younger employees, in particular, are taking ESG factors into consideration when applying for jobs. Food tech companies looking to attract and retain talented staff can leverage ESG to demonstrate a commitment to their workers, their community and the environment.
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In short, setting a foundation of doing good for your employees, communities and planet, throughout your organization, is good for business.
How accounting firms can help clients unlock the value of ESG
Even with clear, strong missions to guide their actions, companies can benefit by investing in ESG. Accounting firms are uniquely positioned to help clients address ESG issues and manage risk because of the significant impact ESG-related matters can have on a company's financial performance and reputation. Consider the expertise your firm already has as an accounting firm and identify how it can be leveraged to support clients in ESG.
- Financial expertise: A deep understanding of financial statements and performance is critical when evaluating the financial risks and opportunities associated with ESG issues. Accounting firms can help clients understand how ESG factors impact financial performance and identify ways to integrate them into their financial reporting.
- Regulatory knowledge: Accounting firms stay up to date on regulatory requirements and can do the same with ESG issues, such as reporting and disclosure obligations. They can advise clients on navigating the regulatory landscape and ensuring compliance with relevant standards and guidelines.
- Risk management expertise: Well-versed in assessing and managing financial risks, accounting firms can take a more comprehensive approach by understanding ESG-related risks, conducting risk assessments, and developing business strategies to manage and mitigate those risks.
- Third-party assurance: Accounting firms can provide independent verification of ESG-related information, which can help build trust and credibility with stakeholders. This will be particularly important for certain types of ESG reporting, such as climate-related disclosures.
- Data and technology: With access to and knowledge of a wide range of data tools, accounting firms can help clients track and report on ESG-related metrics, potentially integrating these metrics into clients' current systems. If clients are not using a data collection and performance management tool, then accounting firms can help them identify and implement technology solutions to collect and analyze ESG-related data.
As ESG becomes more of a regulatory requirement, clients will increasingly consult their accounting firms to navigate the ESG landscape. Even the most mission-driven companies have plenty to gain from executing ESG strategies. Accounting firms should be prepared to incorporate ESG into their clients' strategies for long-term success.
