The Role of ESG in the Future of Corporations
The COVID-19 pandemic has incited many new shifts in consumer behavior. One of those remaining at large is consciousness surrounding the impact of climate change. Because concerns about the planet have taken such a significant effect, many corporations have responded with important announcements regarding sustainability.
Several companies have pledged to scale down greenhouse gas emissions, make zero or carbon-neutral commitments and promise to invest in climate control. In fact, over 90% of companies are showcasing proof by publishing ESG — environment, social and governance — reports for the public to see.
Here’s a closer look at why ESG is more critical than ever and how businesses of all sizes are taking measures to thrive.
What Is ESG?
Environmental, social and governance is a report which discloses data on a company’s mission and impact in these three areas. Essentially, ESG is a framework embodying environmental, social and governance factors alongside financial components that involve investment decisions.
ESG can also help investors decide if companies are viable investments since it shows how corporations perform on each level of E, S and G. To give you a better understanding of ESG, here’s a breakdown of its basics:
- Environmental: Assesses the business’s impact of resource consumption on the environment. It looks at both operations and the supply chain. For instance, it gives you an insider look at carbon footprint, resource scarcity, natural resources preservation and other activities impacting the environment.
- Social: Examines the company’s interactions with the communities in which it operates. It also assesses internal policies, including working conditions, employee relations and diversity.
- Governance: Regards the internal practices and controls that lead to effective decision-making. It also includes company leadership, shareholder rights, audits and more. This information is crucial for investors because it helps them determine whether they can trust the corporation.
Why Is ESG Important for Corporations?
There are two continuous forces at play that are impacting the world’s economy substantially — the climate crisis and a pandemic. With these two circumstantial events at large, many investors and policymakers have realized a great need for businesses to prioritize ESG. As a result, people are accelerating their investments to support higher progress.
After all, citizens are no longer fully dependent on the government. Many people have acknowledged corporations have the power to do something for a change — especially since they have the equity and resources to protect consumers’ interests.
However, ESG is playing a more prominent role in companies today. Not only are investors backing corporations performing well in ESG, but consumers and stakeholders are placing even more pressure on businesses.
The Growing Pressure On Corporations
Within the last couple of years, a growing awareness of how companies manage operations and environmental impact has been growing. To remain successful, leaders must think of innovative methods to achieve and maintain eco-friendliness.
For example, Ikea is one company leaping towards sustainability. Since it uses so much of the world’s wood supply, the corporation announced it would manufacture all its products from recycled materials by 2030.
Because of these pressures from the media, stakeholders, investors, consumers and legislators — companies like Ikea have to perform well on ESG reporting to back up their claims. Otherwise, they won’t remain attractive at all.
Why ESG Is Inevitable
In the future, ESG may become mandatory for all corporations. Therefore, companies must act now to stay ahead of regulations, competition and consumer expectations. But for this to work, they must integrate the ESG framework into the organization’s heart.
Organizations that fail to comply with social and environmental factors may result in legal and reputation issues in the long run. Though ESG is an entire plan, companies may find it challenging to implement these policies. However, it’s never too late and it can add several benefits to corporations, including:
- Attracting top-talent employees.
- Targeting future customers.
- Facilitating brand loyalty and innovation.
ESG Is the Future of All Businesses
ESG is of the utmost importance for corporations to sustain short- and long-term benefits. Therefore, they must continually adapt to changing demands and compliances.
Environments, social and governance reporting has proven to be a smart tactic among enterprises. But most importantly, it’s a good move for the environment and humanity overall.
Author Bio: Jane works as the founder and editor-in-chief of Environment.co where she covers environmental news and sustainable living tips.