Environmental Social Governance (ESG) refers to a set of criteria used to assess a company’s sustainability efforts. ESG can also help with recruitment, future proofing a business, and help with acquisition and winning of new work.
Environmental:
The first pillar, Environmental, focuses on how a company minimises its impact on the environment. This can be achieved by increasing the use of renewable resources, which supports the Net Zero initiative, develop greener products and services, and encourage more recycling and waste reduction.
Social:
The social pillar in ESG relates to a company’s relationship with its customers, employees, suppliers, and the communities in which it operates. Some questions that are asked include:
- Does the company treat its employees well?
- Do they have a high community engagement rate?
- What is their overall impact on society?
Governance:
The final pillar is Governance, whereby investors looking at a company’s ESG will want to know whether a company is managing their business responsibly. They will also look at their ethical behaviour and their ability to be transparent as it will give them an insight into the company’s long-term success in terms of sustainability. Financial performance has been found to link in with its decision-making body, meaning the way a company operates, influences its profitability.
To summarise, the ESG standards help investors gain a deeper understanding of a company’s practices and how its operations impact environment and society. It also determines the long-term success of a company by evaluating its operations against the ESG criteria.
