What is ESG? How does it work? More importantly, why does it matter for businesses and corporations?
These are probably some of the questions that come to mind whenever you come across the word ESG. The idea of ESG, which started with investors looking for a way to invest sustainably, has grown quite popular in recent years. It is not just a concern for investors, but corporations, small businesses, and customers too.
As discussions around climate change and social justice intensify, people increasingly recognize this ESG’s importance in business. It is now more important than ever to develop ESG practices. But before you even get there, you want to understand the fundamentals of corporate ESG practices first.
So, here is a comprehensive guide to adopting ESG:
What Does Corporate ESG Mean?
ESG, which stands for Environment, Social, and Governance, is a collective term that describes a company’s impact on the environment and society. That includes how transparent and accountable it is in its practices.
Basically, it measures how well a business incorporates sustainable environmental, social, and governance practices in its day-to-day operations. Now, let’s break down the three components that make up ESG:
E– The environmental aspect looks at just how well a business manages its environmental impact. Now, every business has some degree of impact on the environment, whether in manufacturing, supply, or general operations. By knowing these impacts, the company can develop strategies to counter the effects.
For example, turning to more renewable energy sources, switching to sustainable packaging or encouraging customers to recycle, investing in research and development of greener technologies in space, etc.
S-The social aspect is all about how a business impacts society. Are your products safe for customers? Are employees within the supply chain treated fairly and provided with a healthy working environment? Do you promote diversity and inclusivity in your company? This metric is about how a company treats all the people associated with or interacting with it.
G– Finally, we have the governance aspect. This covers the management and decision-making aspects of a business. Basically, it assesses how ethical and transparent the company is in running its operations.
Why Is ESG Important?
Applying ESG practices in business is beneficial in more ways than one. Aside from the personal satisfaction you will feel knowing that your business is making a positive difference in the environment and society, being ESG conscious can actually:
Reduce Company Overheads
Practicing sustainability can actually lower operating costs. For instance, you can reduce the cost of materials by recycling or save on energy bills by adopting renewable power sources.
Attract More Investors
It is no lie that investors today look at more than potential gains when considering investments. In fact, according to the latest ESG statistics, approximately 89% of investors considered ESG issues in some form in their investment strategy in 2022, an increment of 4% from 2021.
More investors today are actually looking to increase ESG investments in their portfolios. So, the higher a company’s ratings on ESG scales, the more investment opportunities it can access.
Expand the Market Share
Even customers are looking for sustainable and ethical brands these days. And they would rather spend their money in companies that align with certain values and codes of ethics. So, practicing ESG values may actually help a business stand out from similar brands in the market.
In fact, some customers are more than willing to spend on a brand that charges a bit more than the average market price if it supports an environmental or social justice cause.
Get Sought-After Talent
Getting skilled talent in the current market is no mean feat. Not when several businesses are competing for the same hires. So, it is often the potential hire’s choice when there is more than one offer. Many employees today look beyond pay and want to know whether a company promotes work-life balance, inclusivity, mental well-being, and so on.
Ensure Business Survival
Running a thriving business requires thinking about its future survival and growth. And no doubt sustainability is a key concern now and more so in the years to come. Adopting environmental and social sustainability makes a business more likely to survive in the long haul.
How to Adopt Corporate ESG Practices
Your company, like every business, is deeply intertwined with environmental, social, and governance concerns. So, it makes sense to adopt ESG practices that will bring the company value. So, how can you get started?
Set and Communicate Goals in All ESG Spheres
The first step to adopting ESG is setting clear goals to guide the company. Now, the ESG scope is enormous, and you cannot implement everything at once. So, pick specific issues the company will deal with from all three aspects.
Create a Clear Roadmap
Once the end goal is clear, for instance, switching to biodegradable packaging, start mapping out steps to get there. These are now the practices that will get your company ranked on ESG metrics. Prioritize and integrate these practices into your business strategy.
Train Your Employees on ESG Practices
You want everyone in your team to understand and commit to ESG practices. They can only do this if they have adequate knowledge and training. So, develop programs to bring employees up to speed on ESG practices and benefits.
Engage All Stakeholders on the Importance of ESG
But it is not just about the employees. Making ESG a priority means involving stakeholders at the highest level too. So, rope in the management and corporate board. If possible, create an ESG team to help you track performance and stay accountable.
Measure, Report, and Improve
Finally, measure ESG performance regularly. This way, the company can better tell where it is not doing well and should improve. Now, ESG reporting is not just about making improvements. It also builds trust among investors, both existing and potential.
Corporate ESG is the Future of Business
There is no doubt that today, investors, employees, and even customers consider a company’s impact beyond the core business. So, more businesses are now adopting practices that align with environmental, social, and governance issues. Any company that does not have an ESG strategy should develop one before it is too late.