ESG, and why your organisation needs it

In the coming months and years in a post-pandemic world, there’s going to be a greater emphasis on ESG.

Covid-19 has accelerated the transition to more purposeful and inclusive capitalism with ESG issues central to helping businesses building resilience and long-term recovery.

ESG stands for Environmental, Social and Governance, which relates to the impacts on a sustainability and ethics level of a business and its investments.

Sustainability has become much more of a talking point in business and industry in recent years, with the climate and ecological emergency entering a crisis point that depends on a global human response to tackle it.

Consumers are increasingly looking at organisations and how they are socially responsible and demonstrate leadership that is sustainable and environmentally sound.

ESG has three components:

Environmental looks at business activity and its impacts around topics like climate change, environmental impacts, biodiversity, greenhouse gas emissions (GHG), renewable energy, pollution, waste and recycling.

Consumers are increasingly looking at organisations and how they are socially responsible

Social criteria centres on how a business or company views and treats employees, the local community and people they come into contact with. Working conditions and employee wellbeing, along with diversity and inclusion are also important.

Governance is the third criterion, which highlights how a business carries out day-to-day operations, with the focus on ethics and standards, diversity in staff and management, political lobbying, corruption policies, donations, wages and tax matters.

Why is it important for your business?

Mark Carney, when he was the Bank of England governor, said: “In the future, climate and ESG considerations will likely be at the heart of mainstream investing. Investors will tailor their investments and fulfil their fiduciary duties through better quality and more widely available data on sustainability and performance, and more informed judgements of strategic resilience.”

ESG reporting is expected to be a big focal point of corporations and businesses this year and moving forwards, with investors and stakeholders using ESG data within investment risk management.

Sphera, an ESG and performance and risk management software house, points to how important ESG is. It says: “Companies with strong ESG performance have demonstrated higher returns on their investments, lower risks and better resiliency during a crisis.

“It also helps investors avoid companies that might pose a greater financial risk due to their environmental performance or other social or governmental practices.”

Although ESG reporting is still voluntary in many countries, including the UK, future standards will require greater transparency in corporate ESG reporting, so it pays well – literally – to be proactive in setting out your business’s environmental, social and governance standards now.

A strong position in ESG can make a huge difference in terms of reputation, investment and future growth.

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