ESG Strategy 5 March 2025 minute read

Creating value through strategic ESG

Today companies are put under scrutiny as global awareness on climate change and rising social inequalities grows and stakeholders such as governments, investors and consumers demand more action from businesses to drive positive change. In the face of growing pressure to tackle these issues, some companies are transforming their business models and strategies to be a part of the solution. While some argue that ESG initiatives are merely reactive responses to external pressure and reinforced regulations, our observations indicate that companies transforming their business models and improve their ESG performance, reap substantial benefits and competitive advantage by outperforming lagging competitors. There is however deep uncertainty with respect to the transition towards a sustainable business model as the transition path is littered with obstacles in the short and long term.

This raises the question:

How can strategic ESG create value for companies?

At RiskSphere we encourage companies to take the lead, and we are here to help. We support companies from a-z with developing ESG strategies, meet compliance and improve overall ESG performance. We assess ESG risks and opportunities and create value through our proprietary roadmaps in line with the ESG ambition of companies. Our tailored approach ensure that we meet companies where they are and help them tackle challenges connected with data collection and navigation of complex reporting landscapes.

Kristin Dypdahl RiskSphere
Kristin Dypdahl
Managing Consultant

Corporate Social Responsibility and strategic ESG – what is the difference?

An ESG strategy is a business approach that integrates ESG factors into the company’s operations, decision-making processes, and overall business model. The purpose of an ESG strategy is to ensure that the company has a plan for how it operates in a sustainable manner. This requires long-term thinking that secure business continuity over time.

Historically, ESG was an add-on to traditional business activities, with companies embracing Corporate Social Responsibility (CSR) through philanthropy, volunteering and community initiatives, often disconnected from core business operations. While CSR was often seen as voluntary and qualitative, strategic ESG implementation introduces a more rigorous and quantifiable approach. This brings accountability, business integration and long-term value creation. When ambitious enough, ESG initiatives can drive measurable improvements, aligning sustainability targets and KPIs with broader corporate strategy to enhance overall performance.

Developing a resilient strategy requires a careful assessments of which ESG topics should be managed. This is where the concept of materiality comes in. Conducting a double materiality assessment (DMA) is the first step to identify the ESG topics with the highest relevance for the company. The assessment shall reflect both the “impact materiality” and the “financial materiality” perspectives. Material refers to issues, risks and opportunities that are significant or relevant. For impact materiality (inside-out perspective) it refers to how the company’s activities impact external stakeholders, society and the environment. For financial materiality (outside-in perspective) this refers to how sustainability issues (climate change, social issues) impact the company’s financial performance, risks and opportunities.

Strategic ESG article by RiskSphere

Responding to stakeholder pressure and creating competitive advantage

Over the last few years, companies are facing a rapidly evolving regulatory landscape. Local, regional and global reporting frameworks such as the GRI1, SASB2 and more recently the European Union’s Corporate Sustainability Reporting Directive (CSRD) pose new challenges for companies but also creates opportunities to demonstrate leadership and reinforce stakeholder relationships. Non-compliance risks can impact financial performance, reputation and operations. While some argue that these frameworks impose reporting burdens, they also provide valuable insights to a company’s impacts, risks, and opportunities (IROs), ultimately enhancing decision-making and resilience.

To cite Andreas Rasche, Professor of Business in Society at the CBS Centre for Sustainability “This should not be a compliance game, where you tick off a lot of boxes for the sake of bureaucracy. This should help you try to understand how your company works, and how it can do better”.

Companies with strong ESG performance gain a competitive edge by attracting investors, expanding into new markets and unlocking collaboration opportunities. Once considered a niche investment philosophy, ESG is now a business necessity. Investors increasingly assess ESG performance and the financial risks arising from climate change and other sustainability issues. Long-term Investors focus on how companies manage the ESG risks associated with their operational impacts, strengths and vulnerabilities, ultimately evaluating their ability to remain resilient over time. ESG is no longer a “nice to have” but a requirement for securing investment and funding.

As Morgan Stanley states, “ESG risks are likely to materialize over a longer time-horizon. Therefore, integrating ESG within investment analysis improves the investment risk”.

Reaping rewards from your ESG investment

While ESG is now a business necessity, many companies hesitate due to up-front costs and administrative burdens. However, a meaningful approach to ESG goes beyond  statements and policies – It requires transparency, measurable actions and diligence.

Implementing ESG often involves hiring specialists, upgrading (reporting) systems and integrating sustainability into product development, operations and communication. Though resource intensive at first, the process yields valuable insights. Companies learn and reflect on their current operations, uncover opportunities and reap return from investing in more sustainable products and services.

Companies that align ESG initiatives with their core business strategy uncover new opportunities for value creation. By proactively addressing sustainability challenges, businesses can enhance efficiency, drive innovation, and strengthen stakeholder trust—all while improving financial performance.

Key ways ESG strategy generates value:

  • Driving Innovation & Differentiation – Developing sustainable products and services enhances competitiveness and market positioning.
  • Improving efficiency & Reducing Costs – Minimising resource consumption and waste leads to more efficient business operations.
  • Expanding Market Access & Strengthening Trust – Meeting regulatory and community expectations opens doors to new markets, licenses, and approvals.
  • Attracting & Retaining Talent – Prioritizing diversity, labour practices and employee satisfaction makes companies more attractive to top talent.
  • Strengthening Industry Collaboration – Addressing complex ESG challenges, such as Scope-3 Emissions fosters partnerships across the value chain, driving decarbonization and risk mitigation.
  • Competitive Edge – As ESG expectations rise, early adaptors gain expertise that will be increasingly valuable, while laggards face growing business risks.

Linking ESG strategy to tangible economic benefits and negative externalities

The connection between strategic ESG and financial returns is widely debated. In some cases the link is clear – such as cost savings from energy efficiency and waste reduction or new revenue streams from innovation and product development. The latter allows companies to quantify the value of their ESG investment by comparing development costs to sales performance. Scaling sustainable offerings across multiple clients can further increase the return on investment (ROI).

However, measuring ESG’s financial impact is not always straightforward. The benefits often materialize over a longer time-horizon or remain uncertain, making direct ROI assessment challenging. Still, companies must consider the hidden costs of poor ESG management – such as high employee turnover, legal fines and reputational damage leading to decreased sales.

Beyond direct financial impact, negative externalities must also be considered. Many companies do not bear the costs of their environmental and social impact, as there is no reliable price mechanism to internalize the costs of land, water and resource consumption. Until such mechanisms are in place, the true value of ESG improvements remains only partially quantified.

Strategic ESG in the bigger picture – a call for urgency

Over the last decade, the private sector’s role in sustainable development has intensified. Companies are not just stakeholders in the transition to a sustainable economy – they are key drivers of change. Strategic ESG plays a key role in this process, going, beyond compliance to embed ESG in core business strategies, creating long-term value and mitigating risks. This benefits not only companies themselves but also the broader society and environment.

Business as usual is no longer viable. In Europe, recent political shifts have led to scaled-back ESG reporting requirements, aiming to ease regulatory burden on SMEs. This includes weakened mandates on monitoring environmental and human rights abuses deep within supply chains3. However, at a time when corporate leadership is most needed, reducing oversight risks slowing progress. The transition to a low-carbon economy is now both an urgent challenge and a strategic opportunity.

Physical climate risks further underscore this urgency. Extreme weather events—such as flooding, hurricanes, and wildfires—are intensifying, disrupting business operations and damaging financial performance. The number of weather-related disasters has increased fivefold in the last 50 years, with economic losses surging sevenfold from the 1970s to the 2010s.  The financial toll of acute and chronic climate risks threatens business continuity and value chains.

Building resilient ESG strategies is no longer optional—it is a business imperative. Through RiskSphere’s ESG Strategy, companies can proactively integrate ESG into their core strategies, not only strengthening resilience but also driving positive transformation across value chains. True impact occurs when businesses develop robust ESG strategies and enable their partners to do the same, scaling sustainability efforts for real, long-term value creation.

Let’s build a more resilient and impactful future together

How is your company turning ESG challenges into opportunities? At RiskSphere, we help businesses build resilient, future-proof strategies that drive real value – let’s get started.

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