What is ESG?

By Clare McKenzie
June 22, 2021

In the era of climate change, it is more likely than not that any given company has either heard of or considered environmental, social, and governance (ESG) criteria.  Not only is it good business practice to understand social impact, but also investors are increasingly interested in companies that are transparent about their ESG data.  The US SIF Foundation reported that in 2019, $17.1 trillion was invested according to ESG criteria, up from $11.6 trillion in 2018.

Sustainable investing is expected to continue to grow into 2021.

As evidenced by investment trends, businesses will financially benefit from considering ESG in their practices.  Further, the environment, local communities and stakeholders throughout the value chain are all positively impacted when ESG is considered in business practices.  In order to integrate ESG criteria, companies must first understand the scope of each component.

#1: Environmental Impact

Every company’s environmental impact will differ drastically, so every company has a unique footprint and set of environmental metrics. Monitoring environmental impact usually includes energy usage in all its forms from electricity to natural gas consumption, natural resource conservation, other emissions and waste (refer to our previous blog on Scope 1, 2, and 3 emissions to understand the range of GHGs your company may be releasing into the atmosphere).  

Investors are interested in the scale of businesses’ environmental impacts as well as actions taken to reduce it.  Any potential investment risks including hazardous waste management or toxic emissions could indicate recurring issues that impact local communities or ecosystems if not managed carefully.  In contrast, an extremely energy efficient business could highlight a commitment to resource conservation that may align with investors’ values.  Additionally, as a wide range of effects from climate change begin to take hold of natural resource availability, the most financially beneficial energy sources are renewable options.

#2: Social Impact

Social impact includes business relationships, local community involvement, employee management, and other stakeholders’ interests.  Companies can create a positive and quantifiable social impact by donating a percentage of profits to charity or local community initiatives, providing volunteer opportunities for employees, and demonstrating dedication to employee and investor interests.  Businesses can create an even more meaningful social impact by analyzing the values of other stakeholders throughout the supply chain.  As an example, investors might be interested to know that product suppliers for a company have values that align with ESG commitment.  This could take the form of purchasing recycled office paper or providing employees with locally sourced coffee. 

#3: Governance Impact

Investors are interested to know about management priorities and structures, policies, compliance, and information disclosure among a range of other governance activities and priorities. A company looking to prove excellence in governance might be transparent in its issues, include stockholders in important issues, and ensure that there are no conflicts of interest within its management.  

One example of governance impact includes prioritizing racial, gender, and socioeconomic diversity among board members, employees, and other stakeholders.  By demonstrating commitment to inclusivity, businesses will gain a broader perspective on practices and allow members of marginalized communities to feel confident about the values of a corporation they support.

The benefits of integrating ESG into business can be universally impactful. As investment dollars shift towards ESG-guided companies, ESG metrics move from the periphery to become core pillars of successful business practices. This transformation exposes the misconception that sustainable businesses are less profitable. With ESG, business and sustainability can work together to create a better society and planet.

Do you want to make your business more attractive to investors? Does your company want to demonstrate a commitment to sustainability? Request a demo from Ecolytics!  We help companies determine their tech emissions.  We also recommend efficiency measures to reduce environmental impact and create a more sustainable business.  To keep up with Ecolytics, follow us on our social media platforms linked below!

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