Good, better, best: Railways are advancing their ESG agenda

07.28.2023

A comprehensive ESG strategy could help railway companies to advance their sustainability agendas — and address more than decarbonization.

European rail has a reputation for being safe, smart, and green, and other countries around

the world are working to increase passenger and freight rail modal share as this provides a sustainable transport solution. But environmental sustainability is only one part of the sustainability puzzle.

Environmental, social, and governance (ESG) criteria play an important role in helping companies and industries become more sustainable. Globally, and across industries, a major part of ESG growth has been driven by the environmental component of ESG and responses to climate change. But other components of ESG, in particular the social dimension, have also been gaining prominence— and ESG considerations are becoming more important in companies’ decision making.

The rail industry has made strides in positioning itself as an environmentally sustainable option, and railway companies are pursuing sustainability agendas, particularly surrounding decarbonizing operations. Decarbonization is important, but it is only one element of the wider sustainability agenda that can include ESG criteria.

Individual railway companies could take a holistic approach to ESG and expand their focus on

the social and governance aspects—with many leading railways already doing so. Such companies are reaping the benefits, as implementing a comprehensive ESG strategy can help railways form new partnerships, generate additional revenue streams, reduce costs, and increase access to capital.

For example, railway companies could boost their sustainability metrics by coupling environmental actions, such as decarbonization, with social actions, such as digitizing, to improve railway crossing safety and improving diversity and inclusion efforts. Becoming greener could potentially help railways access financing at lower costs through, for instance, green bonds. As employees are increasingly looking to work for companies that share their values, clear ESG commitments can help to attract and retain talent.

This article offers considerations for railway companies to advance their sustainability agendas through developing a comprehensive ESG strategy, addressing all three elements, and highlights best practices of companies that have done so. Such an approach can allow railways to better engage customers and employees, foster meaningful dialogue with governments, investors, and financial institutions, and, ultimately, create value for all stakeholders through advancing all areas of sustainability.

Source
www.mckinsey.com

McKinsey & Company is an American worldwide management consulting firm, founded in 1926 by University of Chicago professor James O. McKinsey, that advises on strategic management to corporations, governments, and other organizations.

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