For a little over 20 years, companies that were concerned with how to minimize their environmental impacts, building a more just and responsible world for the people in their immediate area, and maintaining their processes aligned with good corporate governance management were considered unique. Today, no matter what segment a company operates in, it is essential to look at external factors from a sustainable and conscientious standpoint, aimed at achieving transformative results. Some people mistakenly believe that ESG practices are only directly connected to a few sectors.
What is the definition of ESG?
ESG is an acronym for “Environmental, Social and Governance” and it is used in relation to assessing companies and countries on these factors to see how advanced they are when it comes to sustainability.
Investing in ESG means investing in companies that score high on scales of environmental, social and corporate governance responsibility, as determined by third parties, independent companies and research groups.
Below is a more detailed analysis of these three pillars used by companies to report their ESG data.
Environment Pillar
What type of impact does the company have on the environment? To manage this practice, the organization must control data for some factors, including:
- Use and dependency on fossil fuels;
- Levels of pollution generated by its productive activities or chain;
- Any climate changes that its process could cause;
- Hazardous materials and their disposal;
- Waste management’;
- Carbon footprint;
- Use of renewable energy, water and other natural resources.
Actions related to the environmental factor need to be contextualized beyond the companies themselves, involving the entire supplier chain in which they are inserted.
Social Pillar
How can the company improve its social impact, both internally and in the community at large? Social factors include data such as:
- Job equality and gender and racial diversity;
- Product safety concerns;
- Employee health and safety;
- Inclusion programs;
- Training and development;
- Animal testing;
- Positions on a variety of issues related to physical and mental wellness, like topics related to drug abuse, gambling and family planning;
- Supply chain transparency
- Human rights
- Data privacy.
This pillar even looks at how a company defends social welfare in a wider world, beyond its limited sphere of business, involving not just employees, but also outsourced workers, suppliers and everyone who, in some way, is part of the ecosystem in which the organization is involved.
Governance Pillar
How can the company’s Board of Directors and Executive Board create positive changes? Corporate governance includes topics like:
- Employee and executive compensation;
- Diversity in leadership;
- Tax strategy and accounting standards;
- Bribery and corruption;
- Fraud;
- Ethics and values;
- Transparency;
- Shareholder rights.
In this case, ESG is aimed at understanding whether the Board of Directors and Executive Board are serving the interests of all of the company’s stakeholders – employees, shareholders, customers, etc.
More than numerous targets and intangible goals, more than public statements of good intentions and illusory policies, companies today must have facts and data to prove what they are doing and show the positive impacts of their activities using auditable metrics and indicators.
This may seem like a passing trend, but it is not and any company that chooses to put these missions into practice will not only fulfill a humanitarian role, but will also be fully equipped to take advantage of the competitive advantages in relation to investors, financial institutions and consumers, raising both profitability and market value. Sustainability in the market is now at a new level and this phase has a name, or rather an acronym: ESG.
Are you interested in learning more about ESG after reading this article? If so, please take a look at more content that we have already covered here in the blog!
