To be a responsible and successful business in the 21st century, it is essential to consider environmental, social, and governance (ESG) factors. ESG investing has become more prevalent in recent years as investors seek companies involved in ESG; businesses that have solid financials and operate responsibly and ethically with corporate transparency. This article will discuss ESG, why it is vital for businesses, and how you can implement it in your own company. We will also explore some examples of ESG in action. Let’s get started!
What are the ESG considerations?
There are three main areas to consider when thinking about ESG:
- Environmental
- Social
- Governance
Environmental
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The environmental aspect examines a company’s impact on climate change and the planet. This includes carbon emissions, renewable energy use, and waste reduction. For example, the travel industry is under pressure to address its environmental impact. We can see ESG evolving in the cruise ship industry, where there have long been concerns about their effects on the ocean and seas. As a result, new companies are paving the way for sustainable travel with environmentally-friendly cruise ships. They use LNG for fuel, power from green ports, and practice zero-waste reduction.
Social
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The social aspect considers how a company treats its employees, customers, and other stakeholders. An example of good social governance is a company taking care of their employees, providing a safe work environment, and checking their mental health and well-being.
Governance
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The governance aspect focuses on a company’s leadership, transparency, and accountability. This includes things like disclosure of executive pay and board diversity. An example of good corporate governance is hiring female talent in high-level roles, such as the C-suite. Additionally, you might employ a diverse workforce of gender, race, and cultural backgrounds.
Why is ESG important?
There are several reasons why ESG is important for businesses.
Firstly, investors are increasingly interested in companies that have strong ESG credentials. Implementing ESG policies will make your company more attractive to potential ESG investors. This is called socially responsible investing, and the trend of sustainable investing is increasing. Moreover, you can align with stakeholder interests by implementing policies that are important to them.
Secondly, ESG helps you keep up with competitors. More and more companies are incorporating ESG into their business models. If you don’t, you could be at a disadvantage.
Risk management
Thirdly, by considering ESG factors, you can help mitigate risk. For example, if your company is involved in activities that could have a negative environmental impact or climate-related hazards, such as oil drilling. Then, by implementing strong ESG policies, you can help reduce the risk of an environmental disaster.
Fourthly, ESG can help you improve your reputation. Consumers are becoming increasingly interested in buying from companies with a positive social and environmental impact. By having strong ESG policies, you will be able to improve your brand image and reputation.
Lastly, good ESG practices can help to improve your company’s bottom line. For example, if you reduce your carbon emissions, you will save money on energy costs. And if you treat your employees well, they will be more productive and less likely to leave. The employee experience has never been more significant in retaining talent.
How to implement ESG
Now that we know what ESG is and why it’s important let’s look at how you can implement it into your business.
There are a few key steps you can take:
- ESG audit: Assess where your company is currently concerning ESG metrics based on ESG criteria. Identify ESG issues and ESG challenges.
- Create ESG frameworks for your company into three categories: environmental, social, and governance. Set goals for each.
- Create an ESG strategy to work towards and reach these goals. This could include reaccessing the supply chain with supplier diversity, Governance issues, or improving employees’ health.
What is an ESG strategy?
An ESG strategy is a plan of action for how your company will achieve its environmental, social, and governance goals. Your ESG standards should be tailored to your company and consider your specific industry and context.
Some things you might want to consider when creating your strategy include:
- How can you reduce your business operations’ carbon footprint? (Environmental criteria)
- What are some ways you can improve employee well-being? (Social)
- How can you increase transparency and accountability in your company? Governance)
Your ESG strategy should be ambitious but also realistic. It should be something that you can realistically achieve within a specific timeframe and include in your ESG reporting frameworks.
Once you have created your ESG strategy, you should inform all stakeholders and customers of your intentions. You can announce your plans in your annual financial planning report, on your website, or in the media. This will help to build trust and credibility with stakeholders.
Additionally, you should regularly review and update your ESG strategy to ensure that it remains relevant and achievable. Including ESG updates and progress in your annual reporting obligations demonstrates that you take ESG seriously, which can only serve your business and brand well. ESG is a marathon, not a sprint. Play the long game!
Interesting Related Article: “Defining ESG solutions for FinTech“