What merits success in a company is both the same and evolving. Of course, making money and keeping customers and clients returning for more is of utmost importance.
Sustainability has become increasingly important to the business world. Many of those same clients and investors, too, are becoming more discerning. They care about the business beyond the product and the bottom line.
The business world is increasingly focusing on corporate responsibility and ESG. But these two concepts are not the same and shouldn’t be confused by businesses as they strive for both.
The reality is that a business needs to have corporate responsibility and use ESG to measure how they get there.
As companies work to address ESG natural resource climate goals, their understanding of ESG needs to continue to grow. They also need the important support of government agencies as they strive to get there.
Read on to learn more about ESG and the importance for companies to understand the role of ESG natural resources in their business model.
You’ve heard plenty of the phrase “act in a socially responsible manner.” ESG stands for Environmental, Social, and Governance. ESG is a set of rules and criteria used to measure the level of social responsibility being practiced by a business.
It doesn’t do much good for a company to claim social or corporate responsibility without the metrics to measure and prove it.
ESG has a set of standards used for business strategies and investor screening in relation to a company’s social or corporate responsibility.
ESG is important for businesses because it acts as a metric to measure. When a company is working toward corporate responsibility, it needs to measure its initiatives with concrete and universally understood metrics.
So, when investors, regulators, business leaders, and other key parties need to look at a company, the ESG gives them an understandable metric to evaluate movement and success toward goals.
In previous times, a company might only be measured in financial terms. That was a gauge to measure their success. Were they doing what was needed financially and doing it well?
Now, though, businesses are measured beyond financial status. The environmental, social, and governance (ESG) metrics are becoming more significant for the business world and those who invest in it.
Whether it’s the pandemic, political climate, or increased focus from society in general, ESG issues have grown in prevalence, so much so that it’s almost a movement.
Activism related to the environment and social causes has shifted its gaze towards businesses and how they use ESG natural resources in an innovative, safe, and impactful manner.
There’s no question about the focus on ESG. In fact, businesses are finding that fund managers, financial organizations, and investors are actually considering the ESG status of a company before they opt to invest in a company.
This level of ESG activism means businesses must include as their business model the plans to focus on and implement policies and plans to show corporate responsibility.
Multiple disciplines are needed and are evolving at a fast pace in the ESG landscape. They must also use the ESG metrics to show their level of movement. These metrics help companies evaluate themselves in a host of ways.
Let’s closely examine some of the disciplines where ESG is being applied.
As part of this ESG activism, companies are being called on to be more transparent about their ESG initiatives.
They need to use the metrics established in ESG to identify material risks and growth opportunities as a part of their plan. Then they need to be transparent about what those ESG readings tell them.
More and more companies are focusing on issues like:
Not only is the company’s expectation to focus on it, but they are being called on to share the movement they’ve achieved using the ESG metrics.
For investors, ESG metrics have become increasingly important for how decisions are made.
Investments like private equity, hedge, real estate, and other group investments show an increase in focus on ESG as part of the investment process.
These investors want to look at and buy into companies that are prioritizing ESG initiatives. Investors need to create solid ESG investment practices and policies and then apply them as they make decisions about where to invest.
Companies can no longer get away with practices that don’t work to protect the environment. The focus on climate activism demands sound policies from businesses related to the environment and energy.
This includes how a company handles things like:
Consumers, investors, and even employees closely watch a company’s decision-making and practices. ESG metrics help companies and those watching them monitor policies and even what type of potential environmental risks are in place.
You might be surprised to imagine the role finance in a company could play as you consider corporate responsibility. Of course, investors are considering those decisions.
Finance, though, involves the practices a company follows in regard to its financial moves. This might include:
Finance leaders need to work with other corporate leaders to ensure financial decisions support other socially responsible policies that are important to the company.
Of course, corporate and social responsibility is important in the workplace, and ESG is also impacting this way.
ESG goals for the workplace might include:
Businesses need to have ESG policies in place that support the significance of human capital in their business.
Falling under the S in ESG are the privacy issues that companies are being forced to address more and more. As the world advances digitally, so do data security and privacy issues.
This actually becomes a social issue as businesses must adhere to strict privacy standards for their users and customers.
Businesses with a socially responsible policy must know how to plan for collecting and using sensitive data. Again, they must also measure their policies using those ESG metrics to demonstrate their level of data security and privacy measures.
It’s not uncommon for businesses to participate in real estate projects as they grow and expand. ESG tentacles should also be a part of real estate decision-making.
The necessity for environmental due diligence should be a part of real estate moves by a business.
If a business is investing in real estate, the same applies. Are they buying or investing in real estate, REITs, distressed assets, and real estate portfolios, and how do those investments fit into their ESG strategy?
Health care, cultural nonprofits, and educational institutions are typically quite adept at addressing social issues. Often these groups are a model for a well-informed social strategy using ESG.
However, remember, ESG also includes environmental and governance-related issues. It wouldn’t be surprising to find these groups needing to focus on these areas.
Their complete ESG practice beyond the social component will likely include energy-efficient capital improvements and sustainability programs.
Of course, the goal would be to have government policy support ESG initiatives whenever possible. The goal would be for the government to recognize the need to create a policy encouraging businesses to focus on ESG practices.
Creating coalitions that focus on making this happen is smart for businesses and the government regulating them. It’s important for the government to proactively address issues related to ESG and develop policies that support it.
The ESG movement for companies will only continue to gain momentum as the climate and environment worsen. Companies will need to do their part in how they model their businesses.
If you’re looking for someone to be on your side as you grow your company’s ESG natural resource focus, we can help. Contact us today to learn more about how we can act as advocates for your interests in ESG.
ACG Advocacy, LLC
ACG Advocacy, LLC
ACG Advocacy, LLC