What is ESG?
ESG stands for Environmental, Social, and Governance.
Environment
Environmental sustainability and climate crisis are among the main criteria that should be considered when discussing ESG. Water and waste management also make this list and many more.
Social
As for the social aspect of ESG, human rights is one of the biggest pain points, followed by animal welfare, diversity in the work field, representation, and even consumer protection.
Governance
Corporate governance is the structure and processes that control companies and involves the Board of Directors, C-Suite, and even employees, in what should be ethics, transparency, anti-competitive practices, and employee compensation.
Of course, the list could be infinite and should consider the peculiarities of each company and social climate.
On the brink of the increasing crisis of global warming and lack of inclusion in today’s society, ESG comes to help companies hold themselves accountable for the future of our social climate.
People want to see change, and while they try to find solutions for their carbon footprint, they want to also see companies coming up with solutions for the problems we all face.
The public sector has a lot to catch up on regarding ESG reporting. While the private sector sometimes depends on funding when reporting ESG, the pressure on the public sector is almost inexistent.
According to McKinsey, “When it comes to ESG, a do-nothing approach is usually an eroding line, not a straight line.” If will there be an ESG revolution it’s still a mystery, but we will soon make a transition to a more transparent way of doing business.
Consumers are starting to care more and more about how the employees are treated, and if they receive fair wages in the fashion industry. They also start to care if a cosmetic company keeps on animal testing, or they are cruelty-free. Or even in the high fashion industry, the fact that some companies prefer to burn the excess of stocks they have instead of donating or selling at a discount price keeps creating a buzz in the fashion industry.
This, along with the rising awareness of Fairtrade and food waste problems in the production sector, should give hints on the rising interest the consumers take when supporting companies and choosing where they spend their money.
According to Reuters, “A record $649 billion poured into ESG-focused funds worldwide through Nov. 30, up from the $542 billion and $285 billion that flowed into these funds in 2020 and 2019, respectively, the latest Refinitiv Lipper data shows. ESG funds now account for 10% of worldwide fund assets.”
In an interview for HBR, Paul Polman, the former CEO of Unilever said that his book called “Net Positive: How Courageous Companies Thrive by Giving More Than They Take” is about “How can a company profit from solving the world’s problems, not from creating them? And the ultimate question that we process” is the world better off because your business is in it or not?”
The European Taxonomy (simply called The Taxonomy) regulations can classify an economic activity as environmentally sustainable or not. So, aligning yourself to the Taxonomy, you can make sure your business is sustainable and could potentially be on the positive side of the net-zero balance at the end of the year.
According to the official website of the European Union, “The EU taxonomy is a classification system, establishing a list of environmentally sustainable economic activities. It could play an important role in helping the EU scale up sustainable investment and implement the European green deal. The EU taxonomy would provide companies, investors, and policymakers with appropriate definitions for which economic activities can be considered environmentally sustainable. In this way, it should create security for investors, protect private investors from greenwashing, help companies to become more climate-friendly, mitigate market fragmentation and help shift investments where they are most needed.”
Considering the taxonomy framework, you could start building your ESG reporting framework. But that should not be your only pillar. It should depend on the geographical context, and the challenges every area in the world faces.
When it comes to ESG investing, the focus remains on the traditional financial factors, but it also adds up the ESG factors, creating an environment of responsible investing.
Because in the 21st century it is not only about profits and risks, but we should also all consider the socially responsible factors.
How is your company planning in making the world a better place?
Source: https://www.reuters.com/markets/us/how-2021-became-year-esg-investing-2021-12-23/
This article is for general awareness only and does not constitute legal or professional advice.
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