Environmental, Social, and Governance (ESG) is a corporate governance and investment framework that companies use to measure their environmental, social equality, and governance aspects of their business.
Environmental, Social, and Governance (ESG) frameworks transform sustainability and social justice from a soft and vague proposition to a concrete, numbers-based one that companies can quantify and report against.
Companies with excellent ESG can objectively measure their performance and improve over time. Companies without ESG, on the other hand, cannot set sustainability and equality goals - or even understand whether they are sustainable and equitable in the first place.
Environmental, Social, and Governance (ESG) is made up of three core pillars:
Environmental governance encompasses everything we ordinarily think of as corporate sustainability. This includes...
- Greenhouse gas emissions
- Carbon accounting
- Waste management
- Facility Management
- Energy Usage
- Biodiversity Impacts
Any business activity that has an environmental externality is included in environemntal governance.
Social governance covers what we traditionally think of as social justice or social equity initiatives. This includes...
- Human rights considerations
- Labor standards
- Workplace health and safety
- Employee diversity and inclusion
Any social or community externality is considered under social governance.
Governance addresses all obligations a company has regarding how it is structured and governed. This includes...
- Ensuring ethical conduct by executives and people in positions of power
- Creating objective and unbiased decision-making processes
- Writing fair corporate policies & applying them evenly throughout the organization
Any process that balances the rights, responsibilities, and identities of various stakeholders in a company is covered under governance.
"The next 1,000 unicorns won’t be search engines or social media companies, they’ll be sustainable, scalable innovators – startups that help the world decarbonize and make the energy transition affordable for all consumers."
Why Having Excellent ESG Matters
Consumers Buy From ESG Companies
ESG is fast emerging as the primary driver of consumer sentiment toward companies, especially in an era when the public is increasingly concerned about the environment, employee health and safety, and social justice. Companies with excellent ESG will find and retain customers in the marketplace, while companies with lacking ESG will be left behind.
Workforce Talent Looks for ESG
Increasingly, Human Resources professionals see great ESG as a competitive workforce strategy. Excellent ESG both engages today's employees and attracts tomorrow's talent.
Investors Love Excellent ESG
With over $124 Trillion (USD) in assets under management behind them, investors are favoring companies that prioritize ESG excellence. Investors are looking beyond financial statements, seeking ESG data for a comprehensive look into an organization's performance, risks and opportunities.
Capital markets are at an inflection point where corporations can no longer ignore the importance of ESG.
Astonishingly, despite how critical Environmental, Social, and Governance (ESG) criteria is, recent studies indicate that as many as 98% of all companies don’t have the hard data to back up their sustainability claims. This practice has been given a scathing nickname by the public: Greenwashing.
Greenwashing what companies do as a holding action when they want to be seen as being green in front of sustainability-minded investors. But greenwashing is not without risk. Companies that greenwash are increasingly being subjected to legal action by stakeholders seeking proof that their claims are backed up by data.
So the question is, do you want to take the risk of just looking good? Or do you want to actually be good?