GlobalData believes that prioritising ESG-focused strategic plans is vital when building a new virtuous cycle. Credit: Deemerwha studio / Shutterstock.com

Environmental, social, and governance (ESG) issues in a post-pandemic world will drive corporate strategies and operational decisions. For example, companies will need to address issues such as social inequality, climate change, and tax avoidance. According to the GlobalData ESG Strategy Survey 2021, 70% of 1,500 ESG executives believe that setting ESG goals will positively impact company revenue. This same survey demonstrated that 80% of companies plan to increase the allocation of their investments to meet ESG targets.

Taking action against climate action can attract more customers, partners, and employees as it is becoming a competitive differentiator. Hundreds of companies are committing to reach net-zero carbon emissions in the next 20 to 30 years. GlobalData expects that this process will speed up as climate change pioneers demonstrate that decarbonisation is both possible and brings market value. Companies are focusing on three different scopes. Scope one and two refer to direct and indirect emissions from company-owned or -controlled sources, and scope three refers to all other indirect emissions in the company’s value chain. For example, Thermo Fisher Scientific announced in July 2021 that it is committed to achieving net-zero carbon emissions by 2050. Thermo Fisher Scientific executives emphasised that achieving carbon neutrality is essential in enabling their customers to make the world healthier, cleaner, and safer.

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Companies need to consider social factors to drive business decisions. Since 2020, the Covid-19 pandemic, and the growing emphasis on social justice, have highlighted the drawbacks of unsustainable social practices and the need to integrate more socially sustainable practices. The four main factors to social challenges are human rights, diversity and inclusion, health and safety, and community impact. Stakeholders are demanding increased transparency and accountability from companies, which is helping to drive the needed social change. For example, Bristol Myers Squibb announced this month that it will be providing $7.965 million in new health equality grants to 24 US non-profit organisations to improve access to and quality of care for medically under served patients and communities.

Governance failures, such as bribery and corruption, damage a company’s reputation and cause a loss of trust. The four pillars determining good governance are corporate structure, risk management, corruption and bribery, and ethics. Governance is the determining factor on whether a company can deliver results to its stakeholders. Since the new generation of consumers has a greater sense of global responsibility, companies need to be transparent and prioritise their ESG strategies. AB InBev uses an artificial intelligence (AI) system, BrewRight, to expose and eliminate corruption and fraud before it takes place. The technology searches for patterns in transactions to identify anomalies and fraud risk across the company’s enterprise-resource planning systems. Moreover, a 2019 survey conducted by the Association of Certified Fraud Examiners found that 13% of companies are using AI systems to detect fraud. Therefore, many companies have room to grow in the prevention of corruption and other governance issues.

GlobalData believes that prioritising ESG-focused strategic plans is vital when building a new virtuous cycle, where pressure from stakeholders will allow for positive changes in ESG issues. This will result in more investments into companies that prioritise solving ESG issues, and will have an increasing impact on market performance.