When referring to ESG – Environmental, Social, and Governance – it is crucial to recognize the importance of these three key aspects and how they shape experts in their decision making process when acting as business investors.
We used to live in a world that relied on a “short-term profit” mentality whenever business matters were concerned. Investors were led by a profit-oriented mindset, desiring to cash in big money without having to pay much attention to the world around them.
However, times have changed. Nowadays, people concern themselves with environmental and social issues that could affect a business. Due to these factors, the rising significance of ESG is noticeable; especially when considering that ESG is crucial to preserve our society’s future and therefore should be viewed as a foundation for every business.
WHAT IS ESG?
Environmental, Social, and Governance examine the factors that may affect a business or may be affected by the business, covering all aspects that contribute to the growth of businesses, such as:
• The environment around the business,
• your employees and the supply network, and
• the communities surrounding you.
ESG sets a standard for businesses worldwide to act “socially accountable” as this concept binds everyone to its three pillars, urging people to think beyond the objective of making profit.
ESG was established to protect our environment from new technologies, inventions, or discoveries that might cause it more damage. It does not just provide an insight into investments but helps us do better in terms of preserving our nature and biodiversity as well as the societal impact in regard to an investment.
WHAT ARE THE ESG STANDARDS?
The Environmental Standards determine a company’s processes under nature’s rules, ensuring its operations benefit the environment. This standard entails information on how a company’s actions may affect the climate and how it might change due to those actions.
These standards overview especially the use/misuse of natural resources, such as water, and they closely monitor the greenhouse effect, discussing matters about the emission of poisonous gases as well as proposing new processes to minimize these effects.
The Social Standards reflect upon the relationship between a company and the people involved – employees, customers, and suppliers –, monitoring the monetary transactions in order to spot potential issues.
Social standards can be regarded as a sort of health insurance within a business, seeing as they include proper health and safety management of the staff as well as the company’s customers. These standards regulate the factory workers’ conditions during the operation and ensure the safety and health of the communities located nearby the company.
Moreover, it looks into the ethics of employers to guarantee the fair, professional and unbiased treatment of clients, customers, and workers which in turn results in a positive work environment.
The Governance standards deal with a company’s higher officials and their responsibilities. After all, proper governance is critical because for a company to be beneficial to every one of its workers, a honest and responsible leadership is indispensable. These standards ensure the audits with complete transparency, guaranteeing that the shareholders get all their due rights – along with fulfilling their responsibilities, and other internal controls.
These standards hold the leadership accountable for every action as well as look into the pays of executives. Measures are taken to ensure that the company is free from corruption, that taxes are paid in a timely manner, and that the executive board’s decisions are transparent.
HOW DOES THIS BENEFIT ME?
First off, ESG is not a short-term concept nor is it outlying. Clare Wardle, General Counsel and Company Secretary at Coca-Cola European Partners, shared her opinion about ESG, saying that their environmental targets enable them to make their business more sustainable.
There are several financial benefits that result from applying these standards, considering that ESG is;
• Investors’ choice
• Providing better results
• Improving financial indicators
• Highly adaptable
• Promoting a positive brand image
In a nutshell, ESG is absolutely crucial in today’s world as the preservation of nature corresponds with the growth of our businesses to fulfill our daily life needs. Additionally, there is no doubt that future generations will rely even more on technology which emphasizes the need to understand the importance of ESG and work accordingly by fostering nature and people over money.