Sustainability is becoming the top priority for the corporate world. Modern corporate firms are tasked with more than just being profit-driven organizations and revenue-generating machines. People now expect more from them.
Businesses today are expected to have an extra layer of ethics and showcase a moral sense of duty towards society. In recent years, there has been a considerable shift of minds. Investors are looking to invest in companies that include sustainable growth with the primary goal of wealth creation.
The boardroom has taken notes of these things and has started embedding business practices that promote sustainability. In fact, some organizations have started preparing sustainability reports disclosing their performance on the social front, things that have been done to save the environment, and governance parameters.
While many governments have not mandated the creation of this non-financial report, it is strongly encouraged in the industrialization community.
What Is ESG?
ESG – Environment, Social, and Governance – refers to an area of the organization that describes its characteristics. These are three factors that define your organization’s ethical impact and sustainability.
Today, most socially responsible investors check a company for its ESG value before making any investment decision.
To put it simply, ESG is a generic term used in the capital market by investors to evaluate the behavior of the company and its financial potential.
The number of investment funds has been growing rapidly since the beginning of this decade. Moreover, experts believe that this will only continue to grow over the decades.
Seeing how ESG is becoming the new norm for the corporate world, you must start implementing ESG in your business operations. Visit this website to get quotes from professionals.
Why Is ESG Important?
The strong performance of your business across these three pillars shows your business’s resilience. You must understand that even a simple task of reducing office waste is as important as reaching out for social activity. Businesses must be able to demonstrate their progress to their audiences in their non-financial reports.
The idea here is to showcase that the business has the capability to take a risk and protect the longevity of the environment and society they are operating in. Hence, you can say that ESG has implications throughout the entirety of business operations.
Particularly the Supply Chain based companies.
After all, 90% of the GHG emissions are found in the organization related to the supply chain.
How Is ESG Measured?
ESG performance throughout the supply chain is measured and rated. The measurement is similar to the risk and performance benchmarking common amongst financial institutions.
However, there is some discretion regarding their method and framework governing the ESG scoring. Here are some best practices that you can look into.
- Any verifiable disclosure related to ESG needs follows a specific set of mandatory and voluntary requirements.
- Transparency needs to be clear in this matter. This is because the ESG report will decide which company comes out as a sustainability leader and the other as a laggard
- For example, there might be a company that is not a carbon-neutral company but might be making efforts to become one. If the company is not transparent about its process, the investors and stakeholder might not show their interest.
Measurement of ESG is important to showcase your activity towards sustainability. This not only helps you become a better organization but also acts as a marketing tool to boost your company’s influence in the industry.
A Closer Look At ESG’s Pillars
Within each pillar, management firms and investors can evaluate different criteria. These criteria can be used to define how a company is performing on the sustainability front.
Here is what you can see when we dissect the three pillars of ESG.
To see the extent of your company on the environment, you must ask yourself – how is your company affecting the environment?
Admirably, it is a broad-based category. However, there are several issues that could risk the long-term sustainability of your business. This might include –
- Dependence on fossil fuel for energy.
- Poor management of water and other resources.
- Pollution levels.
- Disposal of hazardous materials.
- How deep is the carbon footprint your company is leaving?
As a company expands itself and holds influence over the customers, it becomes a social responsibility for them to guide them. This include –
- Product safety and liabilities.
- Employment quality.
- Gender diversity.
- Training and development.
- Supply chain transparency.
- Stance on various topics that affect social well-being.
- Human rights.
- Privacy issues.
The governance pillars support how the organization works internally. If every individual in the organization does not share the same goal, the company might not last for long.
The issues that might be considered while evaluating a company include –
- Board and company diversity.
- Actions were taken against bribery and corruption.
- Compensation of employees.
- Ethics and values.
- Shareholder rights.
- Transparency and anti-corruptions.
The Future Of ESG
The future of ESG is promising and challenging. Incorporating ESG in your corporate reporting is a powerful tool that helps you gain a competitive advantage over your competitors.
With the right implementation of ESG, you can strengthen your internal business operations and maintain a healthy relationship with your investors and stakeholders.
Companies that want to sustain their business for the long term are expected to increase their efforts toward ESG.