Environmental, Social and Governance: Introduction to ESG
Every business is somehow profoundly interconnected with environmental, social, and governance (ESG) concerns. Therefore, it makes sense to hold a higher ESG value creation. Thinking and acting on ESG in a proactive way has recently become even more tenacious as, a wide range of stakeholders, customers, employees, communities, and suppliers progressively recognized strong ESG relate to increased financial returns as well as lower shortcoming risk.
Over a period, pressure among business leaders has increased to address the company’s ESG- related effects. Most business leaders and investors claim that ESG programs independently generate short- and long-term values.
ESG creates value:
ESG is hitting the mainstream nowadays and has been brewing for a while, propelled by integrated demand through employees, investors, and consumers.
Consumers attempt to reduce their influence on the environment most probably by changing their consumption habits.
As per the survey report, younger generations spent almost $128.5 billion on sustainable consumer supplies. However, this trend will persist to expand as 83% of youngsters reveal the importance of environmental sustainability.
Businesses are struggling to ensure sustainability as the requirement of environmental, social, and governance clarity by consumers and employees from companies are increasing gradually. Therefore, a strategic approach is crucial — clarity must be attained throughout the whole supply chain in order to fulfill the aims and expectation level of all stakeholders. For this reason, ESG standards and clarity are substantial.
Consumer’s expectation to accelerate diversity and spend resources on ESG:
Everyone’s investment wishlist is high with climate change, where consumers and employees holding tightly following the business race to net zero. Data security and a company’s privacy are the two bigger investment priorities. According to several outcomes, other priorities for consumers and companies may include access to healthcare, wellbeing in the workplace, and compliance with regulations.
However, it seems there is a glaring disconnect between consumer and management opinion. Executives passionately believe that companies are paying more attention in terms of investments regarding ESG concerns. Therefore, consumers make clearer statements that they are more concerned about corporate actions than their words.
Hence, watching companies progressing, they surely give them credits. According to 74% of consumers, companies are more concerned about environmental issues today than they did ten years before. However, 74 believed there is still slow progress regarding inclusion and diversity. In fact, not being able to get desired results, 64% of business leaders themselves showed disappointments over diversity and inclusion commitments.
Prioritize ESG Initiatives into Businesses
While making decisions related to investment, investors have driven to consider several ESG approaches including screening, integration, and engagement along with the change in investor predictions and the accessibility of new products.
With the integration of investors, policymakers, and regulators impacting towards strong ESG, the following strategic measures must be implemented for determining efficient governance over ESG reporting in 2021:
1. Risk evaluation to clarify the importance of ESG in an organization:
Supervising a risk evaluation permits to classify and focuses on the ESG concerns, that are essential to the business, its consumers, and employees. In addition, it provides an ease for the company to make ideal use of restricted supplies. Though companies cannot divulge ESG concerns in public filings, still it requires to conduct its own risk evaluation to satisfy investors and other employees.
In accordance with certain standards and frameworks, sustainability reporting provides detailed considerations about the identification of materials. For instance, sustainability concerns that are probable to impinge on the financial condition of companies can be identified using Sustainability Accounting Standards Board (SASB) Materiality Map.
2. Incorporate ESG matters into company strategies:
Integrating ESG concerns over the strategic planning procedure of the company would ultimately develop an ESG strategy with a clearer vision and mission. This would further facilitate minimizing the risk of exclusion of ESG-related concerns.
3. Associate ESG into Enterprise Risk Management (ERM)
Given the fact that the ubiquity of ESG related risks comprises the top ten global risks around the world, even so, management of these risks is a crucial part of company’s Enterprise Risk Management (ERM) process. Each risk receives appropriate attention and resources, being a part of overall ERM. Further, it brings a reduction in the probability that ESG-related risks described in sustainability reports are not overlooked.
In the United States, under certain management Environmental, Social and Governance (ESG) have apparently reached an estimate of $250 billion in assets, however, it is likely to grow more rapidly and beyond in 2021. Over the past several years, the incorporation of ESG factors by investment firms has resulted in increased investment vehicles.
During the COVID pandemic, companies have shown strong performances by focusing more on ESG investing, which is further expected to expand more as the administration holds a powerful nationwide perspective on these matters.
Investments in ESG is surely shifting during the upcoming months and years with new developments including new investment vehicles and transparency.