What is ESG?
Updated: Sep 25, 2022
ESG - Environmental, Social, Governance is the major trend for business in the 21st century.
There is no simple, universally accepted definition of ESG, and of course, the meaning of ESG differs from each perspective: Corporate, Investor, Government, Society - Community.
In general, ESG is a set of principles guiding a company, fund management, or practice.
With corporate, ESG is more likely a sustainable strategy or framework which keeps business in the balance of positive environmental and social impact while maintaining good governance to generate profits for all shareholders. Often, Corporate uses ESG to attract investors and conscious customers, simultaneously as a defense mechanism when something bad happens.
ESG has become increasingly known within the investor community. As mentioned earlier, companies with good ESG performance stand out in the eyes of investors. Why? Because along with other financial factors, investors use ESG to screen and categorize their investments portfolio. ESG investing is very much related to risk management. It is proven that businesses with good ESG performance are highly likely to be benefited in the long term, which means less risk for investors and vice versa. Sometimes, ESG investing is also used to refer to responsible or sustainable investing.
In the lens of the government, ESG is a driving force for policy decision-making and regulations. While it is a voluntary base for most aspects of ESG reports now, the government should start pushing the journey of making ESG reporting a requirement for businesses, especially with the significant issues.
Finally, society, or in other words: the general audience, customers, and NGOs… see ESG as a filter for judgment to decide on good or bad companies. Many issues are raised from the society or community where a business operates and are expected to be addressed by the industry even before the government regulates the rules. That is why companies, when deciding on ESG materiality, should not only consider investor needs or government rules but have to analyze community pictures.
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Here are some of the significant ESG aspects.
Environmental
Emission
Energy consumption
Natural resources use
Waste management
Green transition
Pollution
Product life cycle management
Social
Community engagement & development
Labor practice - safety
Customer safety and satisfaction
Human right
Supply management
Employee & customer privacy
Governance
Inclusion & diversity of management board
Executive compensation
Political activities
Supply policy
Corruption & lawsuit.
Taxes
Reference:
ESG today, https://www.esgtoday.com/
Sustainability Unlock, https://sustainabilityunlocked.com/
