#1 WHAT IS ESG?
ESG is an acronym standing for Environmental, Social and Governance. Corporations and businesses are using it to provide a framework to prioritize their sustainability agendas.
At a high level, it comprises:
Environmental: Address emissions, energy use, pollution and resource depletion occurring because of the company’s operations.
Social: Includes all thing people related, including their employees and communities well being, inclusion and diversity.
Governance: Revolves around how management ensures that they do the right thing throughout the company, including how the business is structured, board composition, recruitment, donations, and regional community engagement.
#2 WHY SHOULD YOU CARE ABOUT ESG?
Companies that take ESG seriously have proven to have better financial performance.
In Barron's 100 Most Sustainable Companies, more than half of the companies listed outperformed the S&P 500 in 2020.
Furthermore, investors are actively seeking companies with ESG frameworks to invested in: Over $30 trillion has already been allocated and the anticipation is that will continue to grow as the public becomes more aware of the impact these programs yield.
#3 DATA, DATA, DATA
All ESG initiatives start with… data.
As an example, businesses need to collect data to calculate the potential impact from running leaner and more energy-efficient on their bottom line. Not all data is straightforward to collect. Some of the data will be unstructured. This will create challenges in terms of quantifying the company's impact on the climate, diversity programs, and gender pay, to give but a few examples.
But, the lack of hard data is no excuse for not getting started – at a minimum, mapping out what’s needed will be useful in guiding you to your ESG objectives. Also, they offer a roadmap for implementation.
And, knowing and mastering your ESG data is going to be vitally important as investors become more sophisticated: if current trends persist, investors will begin shifting from businesses that only have lose ESG commitments to ones that are able to quantify and show their net impacts.
#4 HOW TO INCORPORATE ESG INTO YOUR BUSINESS
Perhaps the easiest way to incorporate ESG into the business is to use John Elkington's concept of the Triple Bottom Line: Elkington's theory is that instead of one corporate bottom line, the business should break it into 3: People, Planet, and Profits.
Moreover, businesses should strive to have a positive impact on each:
People: Focus on donating time and resources to the communities they operate in. Strive to improve the quality of life for everyone.
Planet: Make quantifiable adjustments to their business to improve the environment.
Profit: This is a bit of a paradigm shift in that the business should not only consider the dollars that it generates but also the social and economic impact that these dollars can create.
TO SUM IT ALL UP
Today’s consumers expect sustainable products and services, and they are willing to pay a premium to companies that share their values.
That’s where the opportunities lie: Shift your business to one that is more aware and responsible for everyone, and the marketplace will reward you.
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