We at Humans of Globe have been advocates of sustainability since our inception. In the business world, we believe “sustainability” is not simply a buzzword, it is absolutely essential for organizations to thrive.
ESG stands for Environmental, Social, and Governance. These are three main areas that companies are held responsible for.
ESG investing provides a metric for business investments and how well they score in regard to these three pillars.
Also referred to as Socially Responsible Investing(SRI), the criteria assesses corporate policies that businesses uphold in three different factors.
Recent research
According to research conducted by Jean-Marie Meier, a finance professor at Wharton, consumer concern for social and environmental impact is influencing corporate sales.
The study showed a positive correlation between companies with good environmental and social policies, and sales.
For every one-standard-deviation increase in a company’s E&S rating, there was a 9.2% surge in sales for the average product sold within the same U.S. county the following year.
“This is good news for firms that want to pursue ESG practices. And for others that are unsure, this paper is evidence that it might be worth it.” Meier says.
ESG has grown in importance for consumers, business people, and policymakers alike. What has been concluded is that businesses can generate profits while reducing their negative impacts on the environment and positively impacting society.
ESG criteria
ESG stands for Environmental, Social, and Governance criteria, forming a comprehensive framework that evaluates a company’s operations beyond just financial performance.
Let’s delve into each component to understand its significance:
Environmental: This dimension assesses a company’s impact on the environment.
It encompasses factors such as carbon emissions, energy efficiency, waste management practices, pollution control measures, and initiatives aimed at sustainability and combating climate change.
Companies with strong environmental practices are often viewed favorably by investors seeking to support eco-friendly and sustainable initiatives.
Social: The social aspect of ESG evaluates how a company manages its relationships with various stakeholders, including employees, suppliers, customers, and communities.
Key considerations include labor rights, diversity and inclusion in the workforce, product safety, community engagement, and philanthropic endeavors.
Companies that prioritize social responsibility tend to foster stronger relationships with stakeholders and enhance their reputation among consumers and investors alike.
Governance: Governance refers to the structure and practices that guide a company’s decision-making processes.
This includes the composition of the board of directors, executive compensation policies, transparency in financial reporting, adherence to ethical standards, and measures to prevent corruption.
Strong governance practices promote accountability, integrity, and trust, instilling confidence in investors about a company’s management and leadership capabilities.
Takeaway
Skeptics still argue that ESG activities might cause financial strain on companies. However, Meier’s study indicates that companies with declining ESG reputations show a decrease in sales.
When companies produce reports that are unfavorable to the environment and society, consumers respond with their wallets.
Being in the midst of environmental disasters, people are increasingly becoming attentive to what is environmentally friendly.
As mentioned above, we have always encouraged socially responsible practices in business and if this report is proof of anything, it is that if you add value to society, it will add value to you.
