You may not know (yet) what ESG stands for, but you should know that ESG creates value for businesses large and small. The acronym stands for Environmental, Social, and Corporate Governance. It sets the standard for how a company operates and sets criteria that let ESG-savvy investors know what organizations might be worthy of investment. The concept of ESG is as old as time.
Still – as the world launches the post-pandemic economy – the metrics, investment opportunities and overall corporate behavior (and much more) are becoming increasingly significant.
How ESG Creates Value
ESG: Who Cares Wins
Thousands of companies have set the stage for sustainable business. They’ve become B-Certified and/or issue reports on their sustainable practices and share examples of societal impact. In such companies, “triple bottom line” has long been part of the spreadsheet. Organizations like these embraced ESG before it was “cool” or “investment-worthy;” it was the right thing to do. But increasingly, more companies realize the financial impact, even creating positions to build strategic plans and execute ESG efforts.
Think of it this way: A chief sustainable officer and the chief financial officer have plenty to discuss.
Sustainable efforts and societal impact have always defined a business. As we look back decades, we can remember the companies who cared. Who supported the community’s best interests? Which company sponsored youth sports teams? Who helped fund the library? Or, conversely, who polluted the local river? Who churned through employees and disregarded families? Which businesses did your family choose to support?
In Does Capitalism Need a Soul Transplant?, Gallup states investors “want metrics – like ESG – that include evidence of a positive and beneficial impact on the environment. They want new standardized official statistics that include the company’s impact on all stakeholders – employees, customers, citizens, and communities – and their overall well-being.”
The same article states, “If there are two companies with equal shareholder return, but one makes people and the planet sick, and the other makes them better – investors will pick the latter.”
Conscious investing; it’s putting money where your mouth is if you (in any way) care for people.
Now, more than ever, businesses – from one-location, family-owned shops to global corporations – are being watched for how they plan, cultivate and live out the treatment of people and the earth.
ESG and Investing
ESG creates value for all businesses, not just hippie tree-huggers. It pays off. Consumers and business partners seek out companies who aren’t afraid of self-governance and third-party assessments to deliver metrics and transparency about their business practices.
Who else cares? Investors.
According to a recent article in Forbes, Environmental, Social And Governance: What Is ESG Investing?, here is some criteria used for ESG investing:
- “Environment | What kind of impact does a company have on the environment? This can include a company’s carbon footprint, toxic chemicals involved in its manufacturing processes, and sustainability efforts that make up its supply chain.”
- “Social | How does the company improve its social impact, both within the company and in the broader community? Social factors include everything from LGBTQ+ equality, racial diversity in both the executive suite and staff overall, and inclusion programs and hiring practices. It even looks at how a company advocates for social good in the wider world, beyond its limited sphere of business.”
- “Governance | How do the company’s board and management drive positive change? Governance includes everything from issues surrounding executive pay to diversity in leadership as well as how well that leadership responds to and interacts with shareholders.”
Want to learn more? Act soon if you’d like to attend ESG Investment North America 2021, which is taking place in June.
ESG is Here to Stay
Anyone with a dime to spend should understand that ESG creates value for your business while enabling solid business ethics and practices. After all, it is never too late to consciously choose what you buy, where you invest and who you promote. Every decision has the potential to impact our communities and society.
Where else does commitment to the environment and society pay off? Everywhere!
- Prospective Employees | People want to be proud of where they work, so for many employers, ESG can be a unique recruitment tool
- Employee Well-being and Retention | Treating people right while also caring for their well-being significantly improves employee retention.
- Shaping Culture | Younger generations especially choose cultures that embrace care for individuals and foster collective pride in environmental choices.
- Sales and Partnership Opportunities | As noted above, sales prospects and potential business partners look at a company’s reputation when choosing where to align.
I’d love to hear examples of how your organization has embraced ESG.
What has your company done that’s made a drastic change? And what was the response?
Let me know at email@example.com.