ESG sustainability – Governance
Governance attempts to explain a company’s structure. It relates to the policies and procedures on which an organization runs. It expounds the decision- making process and the distribution of rights and responsibilities among policy-makers such as board members, senior executives, directors. In a national level, it involves government officials, parliament and ministers.
With Governance metrics it ensures a company have accurate and transparent policies, accountability, monitors board skills, and demonstrates clear organizational values and purposes embedded in the business. It also assures investors that company’s avoid conflict of interest in selecting their board members, not using extortion for personal gain and not engaged in an unethical conduct.
In the 1990 Nike issue on force labor, they did not only lose a huge number of sales but also their principle and their stakeholders’ trust. In relation to this, an organization is expected to practice the UN SDGs: responsible resource consumption and production, peace, justice and institutions, and partnership goals.
The definition of the three pillars of ESG explains its essence and show the issues at a high level. However, ESG is viewed in different perspective by different stakeholders. “ESG means a lot of different things to a lot of different people, […] between who you’re talking about ESG and what it really means” as stated by Ezekiel Ward.
ESG investing tends to build long-term relationship with its investors and stakeholders, to select companies that can withstand turbulence, to identify cost and resources efficiencies, to promote equality and enhance citizen’s wellbeing and welfare, and to reduce personal impact in the environment.
Understanding the concept of ESG and its objectives, companies will benefit in a variety of aspects.
ESG concept can bring evident benefits both for business and investors. GreenPrint, an environmental technology company, found out that 64% of Americans are willing to buy more sustainable products, it shows that Americans are willing to pay premium for environmental products. This leverages advantages for companies who is in ESG.
Adopting ESG principles also allows companies to gain more investors and lenders. Businesses who provide detailed report of their ESG practices, products that promotes sustainable living influence an investor or lenders view in picking a company to invest in.
Organizations who are involved in ESG also improves their financial performance. Small decision such as going to paperless, making energy efficient upgrades such as solar energy, transition for plastic to recyclable materials helps a company boost its ROI. It also lessens carbon footprint and compliance cost.
Businesses that is transparent, encourages equality and in opposition to gender, sexual, race discrimination builds customer loyalty and attract more customers. Upskilling, fair wages, and unbiased promotions also allows their employees to stay longer and provide great outcomes to their work.
Nonetheless, ESG is still vulnerable and can get backlash from those critics who believe that it is not capable of real-world outcomes. However, this backlash doesn’t stop the ESG concept to trend. ESG concept is moving forward in the US and grew more in Europe. It makes the younger generation more aware of these issues and looking for industries who support the concept. More organization are being launched and created that supports ESG and helps resolve the issues around it. As a result, it still makes companies to change their corporate policies
Highlighting these concepts and resolving the issues that underlie ESG, serves as an important step in creating a business that addresses the challenges of the future. It is also a movement towards a great financial, fair, and more sustainable environment in the coming years.