Across the global business landscape in every region we have heard of ESG (Environmental, Social, Governance) gaining visibility, prominence and even business critical focus as companies start to rebound from the pandemic. It is no longer a "nice to have" framework or future goal; it's now crucial to companies surviving in the world moving forward as external audiences, key stakeholders and financial communities focus on how companies are making progress with ESG goals. Below we share some of what exactly ESG is from our associate Antea Group USA.
As the greater landscape of industry shifts beneath our feet, a crucial element is quietly evolving with it: the expectations of investors.
To determine the value of a potential investment, firms have begun using a specific set of criteria designed to evaluate a company’s sustainability. That is to say, how well will the company hold up to environmental scrutiny? How strong are its relationships in its social ecosystem? Is leadership transparent or will they end up in the headlines in a few years?
These questions address investor priorities that have been developing for years. But with ESG standards, they’ve gotten better than ever at asking them.
What is ESG?
ESG stands for Environmental, Social, and Governance. Together, these three aspects make up a framework to evaluate issues pertaining to a company’s long-term health and prosperity. For many investors, it’s not enough to check off two boxes and leave one totally blank. They’re searching for thoughtful, forward-looking policies and programs in all three of these areas.
What kind of impact is your company having on the environment?
This can encompass issues of carbon emissions, runoff, disposal procedure, pollution of all kinds, resource efficiency, biodiversity, and history with environmental regulatory bodies.
If your company is falling short in terms of environmental responsibility, well investors are only getting more interested. On the other hand, excellent environmental stewardship can show commitment and capability to follow through.
What kind of relationships does your company have with the people in its ecosystem?
This covers how your company manages relationships with its employees, customers, suppliers, partners and communities.
Here’s where your employee treatment, benefits, pay, and diversity will be evaluated along with your company values and how they have (or haven’t) been put into practice. Matters of human rights, sourcing, customer service, and customer protection will also factor into this criteria, as well as the social impact that your operations have left on the surrounding area.
How does the board of directors run the company?
This aspect involves examining the executive governance of the company. Investors will evaluate stakeholder incentives, executive compensation, bonuses, prioritized metrics of success, matters of corruption, conflicts of interest, levels of transparency, and the hierarchy of governance.
Two decades ago, a framework like this could be categorized as a special interest. Today, it amounts to due diligence. No one wants to complete an acquisition only to be unpleasantly surprised. ESG helps to surface relevant risks and liabilities so buyers can make accurate decisions based on the past, present, and prospective future of the company.
Check out the full blog here for more on how it relates to EHS (Environment, Health, Safety and Sustainability), and why it's rising on the radar of business leaders globally.