ESG stands for Environmental, Social and Governance. It is a set of standards measuring a company’s impact on society, the environment, and a company manages its transparency and accountability during its regular activities.
What does ESG comprise of?
The environment component is the most complex environmental, social and governance. This requires companies to consider their carbon footprint and greenhouse emissions directly from a business (scope 1), from energy used (scope 2) and broader supply chain (scope 3). Companies also need to consider how they use resources across their operations such as whether they use recycled materials or most effective materials in their operations and how they ensure that maximum material in their product recycled into the economy. Similarly, companies need to be good stewards of natural resources and address impacts such as deforestation and biodiversity degradation.
The social component considers how companies manage their employees and stakeholders. This includes areas such as health and safety for its employees and stakeholders, and diversity, equity and inclusion within its business, accessibility and coverage of products and solutions across its customer groups and fair treatment of suppliers and partners.
Governance focuses on shareholders rights (e.g., to vote on important matters), board diversity (in terms of gender, race, expertise, and ethnicity), executive compensation and how their compensation align with the company’s sustainability and ESG performance. It also includes corporate behaviour such as anti-competitive practices and corruption.
ESG is here to stay.
ESG impacts all the sectors. Six drivers indicate that ESG will continue to be critical going forward.
- Global challenges: The world faces several global challenges such as climate change, deforestation, increasing inequality need to balance economic needs with societal needs. These challenges require companies to understand the impact of their operations and take initiatives to manage them.
- Customer demand: Customers are increasingly demanding that the goods and services they consume are sustainable. They care that companies they engage with operate in an ethical, sustainable, and responsible manner.
- Employee demand: Employees are also demanding that the companies they work for are committed to ESG.
- Stakeholder demand: Stakeholders such as investors, partners and broader community are also demanding companies to demonstrate credible ESG plans, strategies, and actions.
- Regulatory pressure: Regulators are increasingly requiring companies to report on their ESG performance through adopting frameworks and standards.
- Competitive advantage: Companies that invest in ESG can gain a competitive advantage over their competitors. They can attract and retain customers, employees, and investors who are looking for companies that are committed to sustainability.
ESG factors are increasingly important for businesses of all sectors, and it is here to stay.
In addition to ESG driving business transformation, ESG is also a catalyst for career development. ESG creates demand for skills such as data analysis, reporting, auditing, consulting, project management, and communication. It also creates new roles such as ESG analysts, ESG consultants, ESG project managers, ESG coordinators, and ESG communications specialists. This is a growth area and an opportunity to directly contribute to managing some of the largest issues the world faces. If you are interested in a career in sustainability, ESG is a great place to start.
