In 2005 a conference titled “Who Cares Wins” took place in Zurich bringing together investors, consultants, asset managers, research analysts, government bodies and regulators to explore the environmental, social and governance value drivers in asset management and financial research. This is when the term ESG was used for the first time.
This corporate social responsibility initiative launched by the United Nations saw a record year in 2021, with an estimated $120 billion poured into sustainable investments, following $51 million the previous year.
So, what is ESG and why is it important for your business, however big or small?
ESG is a corporate governance and investment framework. Companies that follow an ESG model, measure, improve and report their environmental, social and governance impact in much the same way as they do for the financial side of their business.
During the pandemic, ESG started gaining momentum among policymakers, regulators and investors as it provides a buffer from future risks in a world that seems to be getting increasingly volatile.
Each of the three pillars of ESG has its significance.
The environmental pillar focuses on the resource consumption of the environment and the risks any business creates on ecosystems, air, water and health. It can refer to your company’s Carbon Footprint, waste management, compliance with environmental regulations etc.
The social aspect of ESG looks into your company’s relationships with employees, suppliers, and customers through a quantitative lens, allowing you to understand risks in this space and make a positive impact. It focuses on community relations and human rights, health and safety and anything about diversity and inclusion, including gender equality. Political affiliations are, of course, very important in this area.
The governance pillar refers to the governance of your business, i.e., decision and policy making, rights and responsibilities among stakeholders, board of directors, shareholders and managers. The importance of the role and composition of the board, the decision-making processes and the purpose of the business itself have increased significantly in the past few years.
ESG initially started with big corporations, however, as investors have been seeking to invest more in companies with high ESG standards, small and medium enterprises (SMEs) are coming into play. Moreover, a shift towards ESG comes with many benefits for businesses of all types and sizes —talent acquisition and retention, consumer/client acquisition, brand enhancement, and innovation, to name a few of the most important ones.
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