THE EFFECT OF ESG ON COMPANIES

ESG stands for Environmental, Social, and Governance. If you’re wondering what that means, you’re not alone.

Generally, it means that a company’s first concern should no longer be how much money it makes, but rather how much social good it does.

ESG proponent Klaus Schwab, chairman of the World Economic Forum, puts it this way: “We can’t continue with an economic system driven by selfish values, such as short-term profit…”

The message is clear: we need ESG to save us from ourselves.

Really?

The pursuit of profits has fueled many of mankind’s greatest innovations and greatest companies.

It led Elon Musk to build electric cars, Andy Grove to design computer chips, and Reed Hastings to develop the world’s most popular streaming service.

Everything from aspirin to commercial airplanes, to yes, solar panels and wind turbines came about because of the desire for profit.

Profit is why you have a job, clothes, a house, food, and every other necessity, not to mention luxuries.

It’s the reason why you can live in Phoenix and stay cool, or live in Buffalo and stay warm.

THE EFFECT OF ESG ON COMPANIES

ESG criteria is becoming a necessity and gained a greater importance among investors, policymakers, and other key stakeholders around the globe because it is seen as a way to safeguard businesses decision making from future risks.

In other words, the investors will refer to the companies’ ESG scores value as for bidding, screening process for financial helps, as well to develop partnership, JV, or business collaboration.

Actually what is ESG stand for??

Environmental, or ‘E’ in ESG, looks at the impact of resource consumption of any business on the environment like carbon footprint and waste water discharge, among other environmental impacting activities.

‘S’ or Social criteria looks at how business interacts with communities where it operates. It also looks at internal policies related to labour, diversity and inclusion policies, among others.

‘G’ or Governance relates to internal practices and policies that lead to effective decision making and legal compliance. ESG facilitates top-line growth in the long run, attracts talent, reduces costs, and forge a sense of trust amongst consumers.

Indeed, there are different reporting frameworks which are easily available and help companies to disclose ESG related information. Some of the most commonly used ones are:

?UN Sustainable Development Goals (SDGs)
?Global Reporting Initiative (GRI)
?Sustainability Accounting Standards Board (SASB)
?Climate Disclosure Standards Board (CDSB)
?Task Force on Climate-related ?Financial Disclosures (TCFD)

Why is ESG’s importance growing?

Recently, pandemic and crisis between Russian- Ukraine have impacting the global economy substantially; fuel and energy crisis, hyperinflation.The distruptions of food supply chain is also due to the climate change (extreme weather) effect on the crops. This has made many investors and policymakers realise a greater need to accelerate investments and progress on businesses sustainability which prioritise ESG.

After all, successful company measurement is not just be defined by how much billions dollars they have made, but also on well-functioning businesses which meet sustainable growth, protection of environemental, natural resources, and safeguarding the human and living creatures.

THE EFFECT OF ESG ON COMPANIES

WHAT IS ESG?

ESG is environmental, social, and governance. This is a non-financial factor for the investors as part of an analysis process to identify risk and growth occasions, it will show if some companies are prepared or not. This helps the companies with insights into their business to approach issues that may occur.

WHY IS ESG IMPORTANT?

More companies are looking for services or products from strong environmental, social, and governance practices. Investors find help in ESG Audit providing them with insights into a company’s approach towards situations. Companies will be prepared for risks and issues that could arise, they can also get insights into on-chain risk and shareholders, which will in return attract superior employees and investors. The Environmental aspect looks at the carbon footprint and discharged wastewater that will impact the businesses. The Social aspect of ESG is looking at diversity, inclusion, labour, and policies and how the business will interact with their communities. The Governance in ESG builds the trust of consumers as well as attracts talent, which therefore will make an impact on the internal practices and policies that will then lead to legal decision making.

HOW DOES ESG BENEFIT BUSINESS

You will find that more businesses get introduced to the likings of ESG which consist of innovation, targeting consumers, and attracting talents, this helps the business also be protected by further situations that may occur.

1. Top-line growth: It is easy to enter a new market and expand their existing markets if the business has a strong ESG approach. The government will provide licenses and permission to such companies.

2. Depletion in cost: Companies switching to a more sustainable way of production tends to lead to reduce cost. Packaging like virgin plastic can be changed to food-grade recycled plastic to reduce the cost of spending money on packaging and manufacturing non-environmental packaging., this will help cut the carbon footprint and save the companies from obedience costs.

3. Attract talent: Companies that have a good ESG score tend to attract better talent and have a longer period of retrenchment, a clear economic development generates proud employees. Younger generations would work for companies that have secured commitments towards the community.

THE RISKS OF ESG

The risk is that large businesses will pay more to have ESG as part of their business and work with companies that have already been implanting the ESG strategy. They will have to make a move from having an effect on the carbon footprint to not having any contribution to it. Meaning that they have to make a drastic move to start implementing the ESG. Therefore they will get more companies or businesses that would want to work with them and have them on board with everything they would want to produce.

Where small businesses can make a quick decision on what to do and not to do and not have to make a big shift from what they are producing because small businesses tend to already have some ESG implemented in their business.

The ESG will have a positive impact on business and the environment, social, and governance for more people would like to support the no pollution, no littering, and a safe environment for animals as well as people.

THE EFFECT OF ESG ON COMPANIES