A Guide to ESG

Nowadays, most businesses are familiar with the term ESG. The acronym stands for the environmental, social, and governance parts of an organization and describes a way for investors to make better decisions about where they invest their money. By acknowledging these aspects, stakeholders can start to understand the quality of caring and social responsibility. In other words, it’s a socially-conscious practice that helps investors think about what a company’s values lean toward prior to making any kind of choice. 

The ESG practice started in the 1960s. At that time, stocks and industries were left out by investors depending on their business activities, notable examples being tobacco production or involvement in the apartheid regime in South Africa. In the 80s, with effects on the environment becoming more important, this practice changed to include employee labour and safety standards (EHS). The Corporate Sustainability movement arrived in the 90s, at which time, management teams were interested in lowering their firm’s environmental impact. Although it was a nod in the right direction for “care towards the planet”, some companies used it as a tool to merely speak about, but not actually do anything about their impact on the environment. Corporate Social Responsibility (CSR) developed in the early 2000s with a goal for companies to respond on social issues. And today, we have ESG; a basis addressing the natural world, people and relationships, and the standards of running a company. 

With the ever-present threat to the environment, the financial profession is taking charge of easing climate change by creating a system that encourages sustainability. Along with climate change, the environmental criteria covers waste and pollution, resource depletion, greenhouse gas emissions, and deforestation. 

Besides directly affecting the natural world, the act of sustainability influences the social factor of ESG; people and the relationships between them. This part is crucial in companies because it concerns the presence of bias and prejudice in the organization, and its potential for being an obstacle between the company and its growth. Diversity, equity, and inclusion are emphasized to recognize and nurture talent that otherwise would be overlooked. Along with this, the conditions of the workplace matter; this ranges from non-involvement in child labour and slavery, as well as the ability to resolve conflict to maintain a safe, healthy, non-toxic setting.

Finally, governance. This speaks to a company’s ability to lead with ethics and integrity, and specifically, transparency and leadership accountability. To satisfy this criterion, the organization must manage corporate behaviour. This involves anti-competitive tactics, corruption and instability, business ethics, tax transparency and financial system stability. The organization should also have and keep order in corporate governance with board diversity, executive pay, ownership and control and, lastly, accounting. 

Nature, social justice, and ethical management; how does all this tie into marketing? When a company follows ESG criteria, they attract consumers who also hold similar values, which in turn, leads to customer loyalty. Even though it is not a common belief, it is safe to say that ESG screening reaps many benefits without heavy costs. As said in Investopedia, “ESG criteria can help investors avoid the blowups that occur when companies operating in a risky or unethical manner are ultimately held accountable for its consequences”. As well, they are said to “gain more traction”. By being socially-conscious, investors can avoid problematic organizations and make profitable investments. In the end, satisfaction is knowing they are investing in something good for the pocket and something good for the world.

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