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How To Secure Access To Low-Cost Capital Through ESG Management

ESG management, like any innovative concept, has sparked its fair share of controversy. Experts and nations engage in heated debates about the approach, the scope, and even the economic value of implementing an ESG management system in business.

Amidst the ongoing debates, McKinsey has shed light on a compelling aspect—evidence is emerging that a strong ESG score can lead to approximately a 10% reduction in the cost of capital. Why, you may ask? Well, it all comes down to risk. When your business boasts a robust ESG proposition, it's better equipped to weather the storms threatening its ability to operate. MSCI Research noted that companies with high ESG ratings tend to be less vulnerable to systematic risks impacting the broad equity market or market-like sectors or industries than those with low ESG-rated companies.

Credit rating agencies are now factoring in ESG performance when assessing companies; those with lower credit ratings face higher risk premiums.

Of course, ESG ratings have their fair share of critics, often lambasted for the inconsistency and opaque methodologies employed by the rating providers. However, financial institutions still rely on these ratings to evaluate the ESG performance of corporations. The alternative of hiring an army of ESG analysts to scrutinize every company in their portfolio is simply impractical.

So, if your corporation aims to secure an accurate and positive ESG rating, you must understand the rating methodologies and align your ESG management programs and policies accordingly. Most methodologies assess two critical factors: exposure to ESG risks and ESG risk management. The former primarily revolves around your core business, which may be difficult to change without altering the fundamental nature of your operations. However, the latter is entirely within your control and responsibility. The question then becomes, how can you demonstrate effective ESG risk management?

First, ESG efforts need to be seamlessly integrated into your governance structure. ESG risk management should become integral to your company's core operations, flowing through all three lines: from business users to risk managers to assurance functions like internal audit.

Motivation plays a crucial role as well. It's incumbent upon management to establish ESG-related incentives for employees or even ESG challenges for individuals or teams. Healthy competition never hurts, especially when it aligns with corporate values, strategy goals, and a purposeful mission.

Second, ESG risks must be appropriately managed and mitigated. Common sense dictates integrating ESG risk management into your existing enterprise risk management framework.

And most importantly, companies must allocate sufficient resources to their sustainability initiatives, such as investing in technology to integrate sustainability into risk management. This includes investments in technology to integrate sustainability into risk management. Many of today's ESG challenges focus on data collection processes, standardization, and maintaining a dynamic overview of ESG risk management posture. A robust ESG risk management program inherently leads to more consistent operational performance and sustainable long term growth.

Archer's ESG solution enables organizations to collect and centralize ESG data into a single platform, evaluate the impact of risks and the opportunities on business strategy, understand 3rd party ESG risks, set ESG goals, and produce auditable reporting all from one integrated platform.

If you would like to learn more about how Archer ESG Management can help your organization achieve its ESG goals and objectives, we invite you to our webinar hosted by Verdantix and Archer titled "California's Climate Change Legislation: What Your Business Needs to Know".

In this webinar, we will discuss:

  • Gain an understanding of the key provisions of California's new regulations and how they impact your organization's compliance and sustainability reporting.

  • Discover the broader implications of these groundbreaking California laws on corporate climate reporting, accountability, and sustainability programs.

  • Learn about technology that can help you manage and advance your ESG program.

We hope you can join us for this informative webinar.


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