Environmental, Social and Governance (ESG) has become a priority for many companies. For those companies that are getting to grips with ESG, there may be confusion around what ESG initiatives to focus on, and why they are important.
In part, ESG has been driven by the recognition that in today’s world, companies need to be accountable to the markets in which they operate, their shareholders and their employees. Furthermore, investors are using ESG criteria to determine whether a company is a good fit for them. By measuring companies against specific ESG criteria, investors are able to steer clear of companies whose operations engage in practices that are not in alignment with their values, and thus pose an investment risk.
So what exactly are ESG initiatives? Essentially, it is any initiative that addresses a company’s performance with regards to minimising its impact on the environment. Or it is an initiative that fosters greater responsibility to employees, customers, suppliers, and the communities in which the company operates. Alternatively, it could be an initiative that fosters accountability and transparency around the company’s leadership, executive pay, shareholder rights and auditing.
These initiatives could aim to address a variety of concerns.
Environmental initiatives may measure and improve how a company minimises its carbon footprint, deals with waste, conserves natural resources, or reduces pollution, for example.
Or, if the initiative is social in nature, it would aim to improve how the company treats its employees and ensures their health and safety in the workplace. These kinds of initiatives have become particularly relevant over the past year amid the pandemic. Social initiatives could also address gender and racial equality in the workplace.
Finally, governance related initiatives would ensure transparency and accountability. This would include reporting on a company’s accounting practices, and whether the company affords stockholders the chance to vote on relevant issues. Furthermore, issues to improve governance could encompass transparency with regards to board appointments and political affiliations.
Clearly, the range of initiatives that a company could implement on ESG issues is vast. Therefore, every company needs to prioritise which ESG initiatives are most important to them, and begin acting accordingly.