What is ESG? And why should it be a consideration for your business?

According to PWC, ESG issues are now more prominent than pre-pandemic. This is due to greater threat of climate change as well as an “explosion of concern about racial and gender equality”, with 86% of employees preferring to support a company that cares about the same issues that they do. People want to be involved with companies that demonstrate a commitment to accountability, sustainability, and that they are an overall good place for people to work.

So, what is ESG (Environmental Social Governance)?

Environmental Social Governance is “a framework designed to be embedded into an organisations strategy, that considers the needs and ways in which to generate value for all the organisations stakeholders (such as employees, customers, suppliers and financiers)” Wikipedia. It looks at the sustainable and ethical impact of an investment in a company, and directors will look to conduct themselves and their companies ethically in the three areas of Environmental, Social, Governance.

Environmental – considers the preservation of the natural world, and the commitment to sustainability – reducing carbon emissions and footprint, energy usage, waste, and environmental responsibility.

Social – looks at the internal workplace culture, employee satisfaction, diversity, workplace conditions, and employee health and safety. It can also take into account customer success, data hygiene and security, community relations, mental health, and income equality.

Governance – this is the logistics and processes for running a business, the corporate culture, company ethos, compensation guidelines, political contributions, hiring and onboarding best practices. A commitment to equity and equality are more attractive to investors. It also covers how the leadership team is structured and how decisions are made within the company.

What does good ESG do for a business?

A company that follows good ESG practices can be very attractive to stakeholders. It can:

  • enhance a company’s reputation – as they are seen to be more ethical, reliable and trustworthy in the eyes of their customers, leading to customer loyalty,
  • attract socially responsible investors,
  • deliver better employee retention and attraction of new talent, which also leads to better recruitment practices and retention rates, as well as lower costs associated with recruitment,
  • reduce operational costs and increased profitability through more efficient processes and cost savings,
  • improve risk management through the creation of sustainable business models,
  • drive innovation and competitiveness, and
  • ensure companies are adhering to regulations and contribute to a more sustainable and equitable society.

It is important for companies to embrace ESG to enable them to retain and attract clients, potential employees, and stakeholders.

What does bad ESG do for a business?

Companies with bad ESG will generally have a poor approach to sustainability, high carbon footprint, struggle with their environmental impact, and a history of energy-intensive processes. They may lack automations and may also have unsafe or dangerous working conditions. There may also be a lack of transparency in companies with poor ESG, with potential for important information being hidden from employees and investors, and the company may only just do enough when it comes to compliance with no effort being made to do more than the minimum.

Because of this, if a company is seen to have poor ESG, then they are likely to suffer from high staff turnover, poor retention, and low levels of employee satisfaction, as well as not being able to attract new talent into the business.

In summary, having a good ESG framework in place offers good PR material to organisations, it allows them to communicate their responsibility and actions clearly to all stakeholders and attract new talent and investors.Post navigation