ESG refers to the three main areas of sustainability: Environmental, Social, and Governance.
Breaking down the concept – Environment deals with considerations connected with energy use, toxic emissions, waste disposal, and natural resource conservation. The Social aspects entail the supply chain elements of a company, community contributions, working conditions at the workplace, and so on. Finally, the elements of Governance include transparency, decision-making, representation of environmental and social stakeholders, etc.
Together, they focus on the company’s long-term value, including its relationships with employees, customers, and the wider community. Financial sustainability is also part of ESG.
The primary drivers – The millennial generation has grown up with a focus on sustainability issues, and they make up a large part of the consumer market. This has led to an increase in demand for (and supply of) environmentally friendly and ethically produced products. There has been increased media coverage on sustainability issues, which has led to improved public awareness. Consumers have become more empowered due to the growth of social media, which has led to a greater demand for transparency and accountability from companies. Investors and executives have also realized that a strong ESG proposition can pave the way for a company’s long-term success. The war in Ukraine and its ramifications across the geopolitical, economic, and social spheres have heightened the talk around ESG, capturing the world’s attention.
“If you don’t address the corporate culture, and endeavor to put social and environmental purpose at the heart of that culture, paradoxically, you won’t actually get the effects you want, including the financial ones.” – Hugh Wilson, Corporate Sustainability and Social Impact Expert, Warwick Business School (WBS).