ESG—environmental, social, and governance criteria—deal with some of the most important subjects any business might tackle. Climate change. Lowering emissions. Investment decisions that have the potential to impact the community. For some, the question of why ESG matters might make intuitive sense. But it can sometimes be difficult to explain to others.
Why does ESG matter? Take the words of Felix Boudreault, a managing partner at Sustainable Market Strategies, a Montreal-based research company. “ESG was firmly put on the decision-making table in 2020 after being a strategy that was ‘nice to have,’” said Boudreault. “It’s now a performance issue that senior executives must address, whether they believe in it or not.”
But what does that look like when building a company that cares about issues like climate change and ESG performance? We’ll dive deeper into why ESG matters—as well as how it can impact your company’s financial performance down the line.
Why is ESG Important for Businesses and Investors?
The first question is simple. Why bother? And that’s simple: any investment strategy or investment process that fails to meet the standards of ESG reporting may put your company at risk. Let’s take an example. If your company struggled to meet regulatory requirements during the worst of the COVID-19 pandemic, it’s possible that you weren’t placing enough emphasis on social responsibility. For many workers, especially millennials, this can be a sign that your company doesn’t care. Mitigating the consequences of a poor plan of action requires you to make ESG a priority in future decision-making.
Think of ESG as investment management that emphasizes the long-term value of your company. You can see everything through the prism of environment, social, and governance criteria. Financial reporting, risk management, social issues, sustainable investing—they can all fall under the umbrella of being a socially responsible company.
The only remaining question is: how do you get there?
What are Some ESG Issues?
First, let’s zoom in to the key ESG issues you may need to address. These are some of the hot-button issues you’ll want your company to acknowledge:
Biodiversity. You may know that the environment is a key portion of the ESG formula. But many investors are now focusing beyond emissions and rethinking a key variable in the environment: biodiversity. An ESG strategy that promotes responsible investment in solutions that promote biodiversity can hit key milestones for anyone looking to improve their company’s impact on the environment.
Clean energy. It’s not enough to have clean energy; a company should invest in sustainability that creates long-lasting jobs. Using ESG funds toward creating clean energy jobs can be a powerful way to impact human rights, even if you haven’t seen the long-term effects just yet.
Merging business and climate action. More than ever, institutional investors are looking for ways to merge traditional business and proactive action on climate change. They don’t have to be mutually exclusive. A good ESG strategy will encompass ways to make good climate action a part of the way you do business—and choosing with whom you do business.
Diversity. Last year completely changed how the public saw race relations in the United States. It’s now more important than ever to ensure that your company is diverse, inclusive, and respectful of all racial issues. These days, many investors are even demanding that a company examine its impact on racial tensions and examine how it can help build a more diverse, inclusive world.
How to Adopt ESG Reporting
Once you’ve learned the key areas you need to address to update your ESG strategy, it comes down to measuring your progress. This means ESG reporting. But what is ESG reporting, and how might it impact the way you do business?
ESG reporting simply refers to any data you have that addresses your performance in relation to environmental, social, and governance criteria. In other words: how much good are you doing?
It might sound like a simple question, but for many companies, the answers can be complex. Just how do you measure some variables that don’t seem to have numerical outputs? It’s hard to put a number on how well you’re improving the world in terms of climate change and racial diversity.
One powerful way to incorporate ESG reporting is to use “ESG disclosures.” In other words, put your new ESG priorities down on paper. Once you do that, you can conduct an internal audit to gauge your performance on the top ESG issues. Here are some ways you can incorporate ESG reporting into a company-wide update of your approach:
Investment analysis. When you analyze potential investments, do you include ESG issues, or are they shoved by the wayside? What aspects of the supply chain have the potential to impact ESG, and what sorts of ESG risks do those aspects introduce?
Including ESG professionals in your decision-making processes. You can put a number on how many decisions you make with or without input from ESG leadership.
Creating systems of accountability. Do you consult with the right people before making decisions? Do you publish the results of new initiatives with the people who need to hear about it? ESG reporting can include systems of enhanced accountability to ensure your company is doing everything it can to improve itself—and the world around it.
Finally, you can use platforms like Millie to track donations with social outreach programs, giving you real data to read through as you gauge your company’s performance in boosting its ESG.
Why ESG Matters for Your Company
No company is an island anymore. You can’t interact with the world and expect to have zero impact on how it works. To that end, today’s companies are placing more emphasis than ever on matters of environment, social justice, and proper governance. Are you one of the companies that will adopt a better way of doing business? Or are you content to let the past dictate how you carry out business in the future?
Your investors aren’t the only ones who care about these initiatives from corporate governance. Your employees will, too. To boost your efforts, you can incorporate platforms like Millie to enhance employee engagement in your ESG efforts and create solid reporting on your latest campaigns—as long as it’s part of an overall approach to make ESG a priority.