Every business is closely linked to environmental, social and governance (ESG) issues. Therefore, it makes sense that a strong ESG proposal could create better values. In this article, we provide a framework for understanding 5 ways ESG creates value.
What is ESG?
ESG (Environmental, Social, and Governance) is a framework used by investors. ESG values responsible investment, and the organization’s ability to ensure long-term value. Let’s briefly breakdown each environmental, social, and governance (esg) criteria :
1. E in ESG, environmental criteria
includes the energy that companies take in and the waste they dispose of, the resources they need, and the consequences that are fatal to living things. At the very least, E includes carbon emissions and climate change. Environmental refers to the environmental impact of the organization. Including natural resources, pollution, waste, and climate change.
2. S, social criteria
discusses the relationships companies have and the reputations companies build with people and institutions in the communities in which they do business. S covers labor relations and diversity. Every company operates in a wider and more diverse society.
3. G, governance
is an internal system of practices, controls, and procedures that a company employs to regulate itself, make effective decisions, comply with the law, and meet the needs of external stakeholders. Every company, which is a creation of law, needs governance.
ESG’s strong position creates long term value. Below is a selection of some interesting articles on ESG value creation – follow the links to read more:
1. Financial performance
A paper entitled Investing for long-term value creation, in the Journal of Sustainable Finance & Investment cites evidence for the ESG business case. With the statement that “companies that perform well on material ESH issues, also demonstrate superior financial performance”.
2. Increase investment
A Gartner article entitled “The ESG Imperative: 7 Factors for Finance Leaders to Consider” points to a growing interest in ESG investing. The article published findings that “85% of investors consider ESG factors in their investments in 2020”.
3. Long-term competitiveness
An insightful article by S&P Global highlights the competitive advantages of integrating ESG principles. The article opens with a statement that “Research is increasingly showing that companies that do not integrate environmental, social and governance (ESG) factors into their business strategies will jeopardize their long-term competitiveness.”
4. Attract and retain employees
The example of ESG value creation continues. A strong ESG strategy also helps with: risk and opportunity management, cost reduction through efficiency and innovation, and preparation for current, imminent, and future ESG related legislation.
5. Strong ESG proposition to improve public relations
It’s not just governments and investors who analyze an organization’s ESG. These are B2B clients, consumers, partners, brokers, developers, suppliers, job seekers – the list goes on.