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What is ESG and what does it have to do with climate change prevention?

There was a time when the purpose of a company was stated rather quickly: Make money and that’s it. However, this strategy has shifted. Nowadays, more and more companies are focusing on ESG. But what is ESG actually? ESG stands for Environment, Social and Governance:

  • Environment: In the environmental aspect, a strategy for climate protection, careful resource management and the use of renewable energies play an important role. Furthermore, it is important to minimise air and wastewater emissions and to reduce the ecological footprint.
  • Social: Companies with ESG criteria commit to creating fair working conditions, respecting human rights, providing employees with access to further training and investing in workplace safety and health. Furthermore, forced labour and child labour are excluded.
  • Governance: In terms of corporate governance, independent supervisory bodies ensure that corruption or anti-competitive behaviour are excluded. In addition, most companies anchor performance-based remuneration for board members in line with the achievement of sustainability goals.

ESG analysis is a complex matter

Taking ESG considerations into account involves not only evaluating a company’s products and services, but also its behaviour, business practices, supply chain and other aspects related to how the company is run. ESG analyses should also look to the future and take into account not only the latest ESG data but also its strategy, its overall impact and the evidence base that it keeps to its promises and standards.

In the meantime, investors approach the matter quite differently, which has led to changes in the companies. Today, responsibility for the well-being of the workforce and the common good play a role alongside returns.

In short, companies must do good 

A well-run and responsible company that cares about its people, customers and the environment is, according to ESG criteria, better positioned to show a high degree of resilience and perform better than other similar companies that do not use ESG criteria. An ESG analysis can provide valuable insights into factors that can have a significant impact on a company’s financial figures.

ESG is affecting people and businesses around the world – from small manufacturing companies to multinationals. ESG investing, or sustainable investing, was important before the COVID-19 crisis, but its importance will continue to grow as humanity recovers from the effects of the pandemic.

More and more investors want to reduce the ecological and social footprint

For a long time, there was no uniform definition of which criteria an investment had to fulfil in order to be called sustainable. One of the reasons for this is that the criteria used can differ from product to product and from provider to provider. For investors, however, transparency about the sustainability concept and the criteria used for sustainable investments is particularly important.

Good ESG reporting is crucial for meeting new regulatory requirements

But also for influencing ESG ratings and improving your reputation with sustainability-focused investors. Take note that using ESG performance data to improve sustainability planning and impact, and to determine the correlation between ESG efforts and your company’s financial performance is important as well. Most companies overlook this crucial use of ESG performance data.

While many companies are preparing to comply with ESG requirements, most have not yet realised that there is a huge opportunity to use ESG data as a key planning tool for long-term sustainable growth.

ESG performance data is not just beneficial for reporting. When ESG data is integrated into a convergent reporting framework as part of an enhanced planning and analysis strategy, you can see how ESG data interacts and influences financial and other operational information.

Sustainability is not just about a small change such as using recycled plastics for a small part of the business. It is about becoming a sustainable company.   

Categories: Life