You may have heard of the term “ESG” before, but what does it really mean? ESG stands for Environmental, Social, and Governance. In the business world, these three terms represent a company or organization’s responsibility to manage their impact on society and the environment. Many companies are now turning to ESG investing, which is when investors choose to put their money into companies that uphold high standards in these areas. So, what are ESG sustainability standards? Let’s take a closer look:
ESG Sustainability Standards Defined
As mentioned before, ESG represents environmental, social, and governance considerations. When it comes to sustainability standards, companies are evaluated on their performance in each of these areas. For example, some of the environmental indicators that companies are measured on include greenhouse gas emissions, energy use, water use, and waste generation.
Social factors include things like employee safety, human rights violations, job creation/losses, and diversity & inclusion initiatives. And finally, governance indicators look at a company’s board composition, anti-corruption policies, executive compensation practices, and shareholder rights. As you can see, there are a lot of different factors that go into determining whether or not a company is meeting ESG sustainability standards.
The Importance of Adhering to ESG Sustainability Standards
So why is it so important for companies to meet these standards? For one thing, investors are increasingly looking for companies that align with their own values. In fact, according to a 2019 survey conducted by BlackRock, nearly half of all institutional investors said that they factor in ESG considerations when making investment decisions.
What’s more, adhering to ESG standards has been shown to lead to better financial performance. In a 2017 study conducted by MSCI Inc., it was found that over a five-year period, companies with strong ESG ratings outperformed those with weak ratings by 2.5%. This just goes to show that being sustainable is not only good for the environment and society—it’s good for business too!
Companies that adhere to high ESG sustainability standards tend to be more successful both financially and in terms of investor relations. If your company is looking to make some changes in order to meet these standards, consider implementing some of the following measures: reducing energy consumption, setting Diversity & Inclusion goals focuses on improving communication between management and employees. Making sustainability a priority company-wide is not only the right thing to do—it’s good for business too!
If you’re looking to track your ESG progress, create an ESG strategy, or report on your ESG initiatives to prevent risk, use a tool like EmpoweredESG to help.