Over the years, companies have begun investing in where their values are. This has led to the rise of sustainable investing, where companies attempt to align their portfolios with their personal and corporate values.
ESG is a widely accepted term for sustainable investing. Today, let’s look at what ESG is and how it can benefit your business.
What Is ESG?
ESG stands for Environmental, Social, and Governance. It is a set of criteria that comprises standards for a company to remain socially and environmentally conscious and follow ethical governance practices.
Other terms used to refer to ESG are socially responsible investing, sustainable investing, mission-related investing, and impact investing.
Each element in ESG comprises a set of criteria that companies must follow in order to be ESG-compliant. Let’s take a look at the criteria under each ESG element.
- Environmental: Environmental criteria include things like a company’s waste management program, the handling of air/water pollution, deforestation issues, and the use of renewable energy sources. It also includes the sourcing of raw materials, fair trade suppliers, etc.
- Social: Social criteria comprise numerous issues, such as fair employee pay, basic wages, workplace policies, employee education programs, and employee empowerment. Other factors include customer relationships management and the company’s public or political stance on certain issues or subjects.
- Governance: The governance aspect of ESG includes achieving good corporate governance and accounting and financial transparency. It also includes relationships with stakeholders, board members, and company executives.
Benefits of ESG for Companies/Businesses
Now, why should companies care about following ESG practices? Here are the key benefits to know.
Positive Financial Impact
Companies that integrate ESG into their long-term strategic planning achieve better financial performance. This surge in financial performance is directly associated with more interest shown by consumers. Nowadays, customers are choosing companies that stick to sustainable practices.
Improved Awareness and Reputation
Companies that implement ESG practices into investing are able to present themselves as a more socially and environmentally responsible organization. As consumers are becoming increasingly aware of the companies they do business with, adherence to ESG can enhance your company’s reputation.
Improved Collaboration across Levels
Good governance is a key factor of ESG. When a company follows favorable corporate governance guidelines, it facilitates seamless collaboration across all organizational levels. This results in a better employee experience, which in turn leads to improved performance and productivity.
Good for the World
As humans, we are morally responsible for thinking beyond materialistic benefits and do something for the greater good. By following ESG criteria, companies can create a positive impact on multiple levels. For example, they can reduce their environmental impact and support critical issues in society.
Sustainable investing is on the rise as consumers are becoming more aware of what businesses do. Therefore, ESG has become a global standard, followed by leading companies like Intuit, Salesforce, and NVIDIA. If you’re a business owner, investing in ESG could be a great option from a financial and social point of view.