There is an undeniable importance of Environmental, Social, and Governance (ESG) considerations which comes with the ever-evolving business landscape of today.
There are three elements to ESG – Environmental, Social and Governance.
The environmental aspect relates to a company’s impact on the environment and the natural environment’s impact on the company. Factors such as a company’s carbon footprint, it’s impact on biodiversity and production of waste and pollution are taken into account.
The social aspect determines how a company treats people essential to it, such as employees, customers and the community in general.
The governance aspect measures how a company operates internally though diversity, internal controls and shareholders rights.
Companies face serious consequences, such as loss of reputation or customer loyalty if they fail to adequately consider ESG as a key factor of corporate governance.
It is clear that ESG is now essential, and following the core principles will allow for the businesses’ success and sustainability.
A structure to the company’s operations
ESG sets out a framework for companies which addresses every day issues relating to the environment, society and the business’ operations. The purpose of ESG is to guide businesses to become more sustainable and responsible. This is to show that companies are committed to contribute positively to the world which is facing important challenges such as climate change or inequality.
It is crucial for businesses to adhere to ESG considerations as companies are influential in tackling these issues and will also allow them to succeed in evolving alongside the global economy.
Attracting investors and mitigating risks
When considering investing in a business, investors and asset managers will focus on a company’s performance through ESG and will prioritise businesses with sustainable and ethical practices.
Ignoring ESG risks can have serious consequences for businesses and investors will see ESG as a method to manage potential risks. A company which prioritises ESG performance will be less likely to face disruptions which could erode trust and lead to financial losses.
Attracting and retaining talent
Businesses with a strong ESG strategy are more likely to attract and retain employees on the basis that the company will share its employees’ values. Moreover, employees appear to be more motivated when they are part of something bigger than simply making profit.
Consumer trust and loyalty
As for the employees, consumers are generally more attracted to brands that share the same values through preservation of the environmental, social justice and overall corporate transparency.
Regulations and Compliance
The regulations around ESG issues are tightening and non-compliance can lead to fines and reputational damage. It is therefore highly important for companies to stay ahead and comply with any Government regulations.
Being innovative
Following ESG guidance can lead companies to be more innovative in the way they operate as it would ultimately lead to think “outside the box” and would therefore encourage management and employees to be creative.
In conclusion, companies must take ESG seriously, not just as a moral guidance, but also as a development strategy. Companies which follow ESG will have a better understanding of today’s issues that society is facing on a bigger scale and will be more likely to thrive and evolve alongside the changing economy.
The information provided in this article is provided for general information purposes only, and does not provide definitive advice. It does not amount to legal or other professional advice and so you should not rely on any information contained here as if it were such advice.
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The information published across our Knowledge Base is correct at the time of going to press.
