ESG is a term which has existed for some time, and which is of increasing importance for businesses to consider in today’s increasingly troubled economic and environmental waters. ESG stands for Environmental, Social and Governance, describing three key issues which historically have suffered from poor corporate practice. As the fight against climate change steps up, and as public pressure mounts towards businesses regarding their public impact, why is ESG the right route to travel for businesses?
ESG and the Regulatory Landscape
ESG is, in essence, a modality: a specific framework by which a complex and intersecting array of timely issues can be equitably approached and addressed by a given organisation. It exists, conceptually, to provide structure to what can otherwise be a nebulous endeavour – enabling businesses to more easily meet individual regulatory demands relevant to each field.
For example, the ‘environmental’ aspect of ESG is well-regulated through a number of different laws, and across a number of government agencies; with regard to this alone, enlisting the expertise of ESG specialists can be vital to meeting legal expectations. However, there are many reasons for which a business should adopt a comprehensive approach to ESG thinking, above and beyond legal implications.
Trust and Reputation
For one, ESG-related issues are of extreme public interest. This is especially true when it comes to the present environment of worsening ecological catastrophe, localised environmental damages and visible after-effects of industry on local populations.
A cavalier approach to one’s own impacts on any part of society will be seen for what it is by one’s consumer base or wider demographic audience – something demonstrated well by the phenomenon of ‘greenwashing’, and the various instances of public pressure unveiling craven attempts by businesses to wear the stripes of an issue without addressing its causes. Conversely, the transparent adoption of ESG as a core structural framework can engender trust from the market, thus improving the stature and reputation of a given business.
Financial Performance
There is, of course, a financial incentive to incorporating ESG as a core structural aspect of a business. This financial incentive presents from a number of different angles, too; for one, there is a long-term financial value attached to the building of trust in an audience or market, where custom is won from less-forthright businesses in the same space.
There is also the fact that above-and-beyond approaches to ESG compliance enable businesses to remain several steps ahead of the legislative movement. Should the government introduce strictures regarding the provenance of energy for businesses, such as a levy on the use of unsustainable fuels, the business that has already transitioned to renewable energy will avoid the costly pitfalls that other businesses enter as they scramble to comply.
ESG, then, is a handy format through which to consider a business’ relationship with its surroundings, and one which can provide early guidance on issues which will eventually – and inevitably – become new battlegrounds for unprepared organisations. No business should address long-term vision without addressing ESG as a matter of import.
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