By: Leah Napier-Raikes
ESG programs, short for Environmental, Social and Governance, are a set of standards measuring a business’s impact on society, the environment, and how transparent and accountable they are, and have become a core focus for businesses today. The Confederation of British
Industry found that two-thirds of investors consider ESG factors when investing in a company,
which is beneficial to both the businesses who follow ethical guidelines, in addition to improving the impact that corporations have on the environment. For businesses, incorporating ESG strategies into their practices can demonstrate that the company is reducing risks by considering the future of environmental legislation which appeals to investors as this accounts for
longer-term growth, and also appeals to customers who are becoming increasingly mindful of the ethics behind what they consume.
The factors of ESG:
- Environment – Measuring environmental data reduces outgoings by cutting energy, water and waste usage, further allowing the business to undertake sustainable, ethical practices.
- Social – An attractive and diverse business culture will help you to maintain low staff turnover and will also attract people of various backgrounds that will promote growth.
- Governance – The focus on risk management will appeal to investors, your customers and your supply chain, and also bring their own cost savings in terms of insurance coverage. Businesses who practice ethical behavior and ensure they have the correct safety measures in place will reap long term benefits compared with companies who do not place as much care into their ethics. Governance also comprises environmental and social aspects of ESG due to the transparency and decision-making behind them.
Organizations need to demonstrate transparency about their impact on the climate, even if the
company is not quite hitting the mark on their promises or what messages they promote in order to hold accountability for businesses and prevent instances of ‘greenwashing’ – when companies claim their organization’s actions have a positive impact on the environment to promote sales, however, these claims actually have not been met or present inaccurate data. One example of this is when Oat-Ly, an oat milk brand, advertised claiming worldwide veganism would reduce global emissions by 50% resulting in the advert being banned due to overstating their environmental impact .
For many consumers, the recent focus on ESG and accountability for businesses will be a
refreshing new page, as in previous decades, supporting companies with focus on ethics and
environmentalism often came with an additional cost, with many making their environmentalism and sustainability a marketing strategy. This can be shown through the example of how much an environmentally friendly and ethical diet can cost as opposed to a regular diet. The US
Department of Agriculture (USDA) found that the average US citizen’s weekly grocery bill on a ‘regular’ diet is $61.85, compared to a vegan being $87.25 and organic being $97.14.
Environmentally friendly consumption evidently comes with a price that not all people can afford in their day-to-day lives, however the recent focus of ESG in business may create incentive for more affordable companies to follow similar ethics and practices.