As the demand for sustainable and social practice increases, ESG is becoming essential. Sustainability goes beyond environmental concerns. It is about developing resilience into infrastructure and social practices. That’s where the ESG (Environmental, Social, and Governance) comes into play to help.
So, why is ESG important? Well, ESG analysis and reporting offer insights to help deliver long-term value to stakeholders. Some of the stakeholders include customers, employees, investors, and NGOs that plan to check the impacts of companies on the world. That’s why ESG is vital today.
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Now, let’s dive deeper into the basics of ESG in today’s world and its role.
What Does ESG Mean?
ESG is the acronym for Environmental, Social, and Governance. So, ESG reporting provides data that explains a company’s impact or added value in the three areas. In other words, ESG is a general term for sustainable and accountable finance aspects. It considers environmental, social, and governance factors in decision-making.
Understanding ESG
Here are some of the benefits of ESG performance in companies.
- Environmentally sustainable practices provide access to better resources, reduce energy/water consumption, and lower operational costs.
- Socially sustainable practices improve social credibility, attract talent, improve community relations, and motivate employees.
- Governance sustainable practices may attract government support and subsidies. It also helps companies overcome the increasing regulatory pressure.
ESG Factors
Here are what the ESG factors involve.
- Environmental: Look at how companies use energy and manage their impacts on the environment. Some of the factors considered are climate change, energy efficiency, carbon emissions, air and water quality, and waste management.
- Social: Evaluates how companies are socially responsible or how they handle their people and culture. Some of the factors involved are gender, inclusivity, diversity, customer satisfaction, human rights, and data protection.
- Governance: Looks at companies’ internal systems of controls, procedures, and practices. It checks how a company stays ahead of violations. Some of the things considered are leadership structures, executive compensation, and corruption.
Make Your Investment Decisions Wisely
ESG is important because it comes with numerous benefits. They help companies and investors make sustainable investment decisions and manage environmental risks. As a result, it can boost company performance and improve risk management.
Contact us to learn more benefits of ESG criteria in companies.