ESG is not just Important, it is CRUCIAL to business success!

If you want to check how sustainable a company is, you will need to look for its ESG report. ESG has become a hot topic in the boardrooms, and an increasing requirement for investors, employees and customers. As a business, If ESG regulations don’t affect you yet, they will soon. 

So, what is ESG? 

We know that when investors look at a business and decide whether to invest, they evaluate areas such as financial data, sales growth, cash flow and market share. These factors are essential, but they are not enough. It is now crucial that investors look at performance metrics in what we call ESG. 

ESG stands for the Environmental, Social, and Governance factors which are used to evaluate companies on how advanced they are when it comes to sustainability. 

These factors are considered the 3 pillars of sustainability. Once enough data has been collected in these areas, they can be integrated into investment processes when making decisions around buying equities or bonds.  

 Environmental factors include natural resource use, carbon emissions, energy efficiency, pollution and sustainability initiatives.  

  Social factors consider human capital; employee engagement and innovation capacity, workforce related issues (health, diversity, training), and broader societal issues such as human rights, data privacy, and community engagement.  

  Governance relates to the oversight of companies by their boards and investors. It is about how well a company is managed, combining board independence, board diversity, shareholder rights, management compensation, and corporate ethics.  

Why measure ESG factors and engage in sustainability in your workplace? 

• As a company you will be cost effective and sustainable 
• It is the optimal way to secure investments in your business. 
• Regulations are already in place or are in the pipeline which will require you to provide ESG reporting. 

Ten years ago, ESG was a grass roots initiative, today it is top down.   

Climate change is associated with an enormous amount of environmental and social issues, but that's not all. There are economic issues, and that makes them relevant to risk and return. 

Nowadays, investors are interested in companies that measure periodically their ESG performance. Using these 3 sustainable pillars, investors can get an overview of the risks and opportunities that a company holds.  

In addition, investments which score well on the ESG evaluation have been reported to outperform other investments. These sustainable businesses tend to be more efficient and cost-effective over time, so investing using ESG standards tends to lead to higher returns in the long run. As a business it is incredibly important to report using ESG standards in order to maintain and increase your investors and retain your place on portfolios. 

By prioritising ESG in our companies and in our investments we are doing two things. We are creating insurance, reducing the risk to our planet and to our economy, and at the same time, in the short term, we're not sacrificing performance. 

Lets look at a little data: 

ESG investing now counts for 1 in 4 dollars. 

78% of millennials say they would not work for a company that does not have good sustainability and ESG performance. 86% of them say that sustainability is a priority when it comes to investments 

98% of institutional investors say they do not invest in a company that has not considered ESG factors. Institutional investors how a phenomenal influence and sway over sustainability in business, The global stock market is worth 55 trillion dollars. The global bond market, 78 trillion. That's 133 trillion combined. That's eight and a half times the GDP of the U.S. That's the world's largest economy.  

About 80 percent of global CEOs see sustainability as the root to growth in innovation and leading to competitive advantage in their industries. But 93 percent see ESG as the future, or as important to the future of their business. So, the views of CEOs are clear. There's immense opportunity in sustainability. 

An example of incoming regulations: 

‘The Corporate Sustainability Reporting Directive (CSRD) is part of an EU law that requires certain large companies to disclose information about how they address social and environmental challenges.  

This directive will require all large companies and all companies listed on regulated markets to provide investors and other key stakeholders with high-quality and comparable information on material ESG-related risks and opportunities impacting their business in order to drive sustainability across the private sector.’ 

This is one of many regulations coming down the track for businesses to embed ESG into their operations. It is time to get on board. 

  *Joel Pett Editorial Cartoon 

How do you report your ESG? 

All reports need to be transparent, clear and presented with consistent terminology, graphs and charts to help in organising and communicating information. 

Your report’s purpose is to shed light on a company's ESG activities, make sure that you present your goals and your progress so far and that these projects are genuine.  

Make sure that you include qualitative and quantitative information considering your Environmental, Social and Governance actions.  

 
Green washing 

Unfortunately, the arena of "sustainable" has a lot of gray areas. ESG investing uses particular criteria to grade investments in an attempt to clarify exactly what sustainable should look like. Using ESG factors to improve your company's sustainability can be effective but it absolutely needs to be done with transparency, action and data to communicate your efforts.  

The same applies for investors, look out for companies that are considering the ESG factors and making changes that are specific to them and include quantifiable data. Avoid those who make vague statements about being sustainable or eco and beware of companies creating a ‘green sheen’ to hide their environmentally damaging effects.  

If you want to get on board the ESG train but you are not sure how to get started get in touch with us at [email protected]

Our ESG Leader programme commences on August 16th 2023.

Thank you for reading today! 

 The FSG Team 💚