The ‘ESG trend’ has been going on for a number of years and is starting to get a backlash. For instance, the Economist declared SRI a “broken idea” and the New York Times called it a “scam”. This is because sustainable investing in ESG funds turns out not to be so green; ESG scores are arbitrary, they operate in secondary markets and ESG investments do not always yield more returns. We couldn’t agree more. After all, ESG should not be a vehicle for making profits without actually delivering on the underlying promise. ESG in itself, three factors for measuring sustainability, is a valuable concept if it is measured correctly. We explain it to you step by step. This blog: ESG.
ESG is an abbreviation of the words Environmental, Social and Governance and are the three most important aspects when it comes to measuring sustainability. The term originates from the Triple bottom line, a framework we explained earlier. The Triple bottom line states that a company should balance its interests and not just focus on profit. Later, this evolved into ESG.
Because the three aspects of ESG cover almost every part of a company, it is widely used by international organisations to measure sustainability. For instance, the world’s most frequently used sustainability standards, created by the Global Reporting Initiative (GRI), are based on ESG. Also, the Corporate Sustainability Reporting Directive (CSRD), a sustainability regulation made by the European Commission that takes effect in 2023, will be based on ESG.
Environmental measures how a company performs on environmental challenges. Examples include waste, CO2 emissions and other greenhouse gases, climate change, water, energy and power consumption, and deforestation.
Social measures how a company interacts with people. This concerns not only its own employees but also stakeholders and other individuals or groups (in)directly related to the company. Examples include diversity, equal opportunities, working conditions, health and safety and transparent sales.
Governance measures how a company is controlled. Examples include remuneration, tax, strategic management, stakeholder advocacy and corruption and bribery.
Why it is important for your business
Because ESG is embedded in every aspect of a company, it is a good method to measure sustainability. This awareness is widely shared; customers, employees, shareholders, lenders and regulators require companies to think about their impact on the environment, and society. This makes ESG crucial.
In addition, ESG is relevant to SMEs and therefore important for you as an entrepreneur. First of all, measuring your ESG performance contributes to more business growth. For instance, almost one-third of consumers, 61%, are willing to pay more for sustainable services/products.
Secondly, a company that measures its ESG performance has legal and regulatory advantages. Specifically, companies with good results have more freedom which leads to a positive impact on the customer and employee side.
Third, being engaged with ESG has a positive impact on talent recruitment and employee motivation and productivity. For example, 64% of millennials will not consider a company that is not socially responsible and does not have a sustainability policy. Furthermore, implementing an ESG policy creates a strong corporate culture and makes employees proud of their workplace.
Want to know more about why ESG is important for your business? Have a look at our blog: “Essentials: Why ESG?“.
How you can begin
Getting started with ESG now does not have to be difficult. For instance, you can investigate whether your company is already doing something in each of the categories and examples mentioned above.
To get a full picture of which ESG areas your company is already contributing to, it is best to do a baseline measurement. A baseline measurement measures your ESG performance and makes you aware of your company’s sustainability.
If you then know what your starting position (baseline measurement) is, you will also know where there is room for improvement. Improving your ESG performance, also known as sustainability, is done in small steps. Here, progress is more important than its pace.
Finally, you can communicate about your ESG performance. Here, it is important that, as mentioned in the introduction to this blog, you do this transparently and clearly. After all, ESG should not be a vehicle for making profits without actually delivering on the underlying promise.
Our sustainability platform is based on ESG and the methodology above. We measure, improve and communicate together with you about your company’s sustainability. This way, we help you not only in getting started, but also in the implementation!
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