What does ESG stand for?
The abbreviation ESG stands for environment, social responsibility, and corporate governance. This concept initially emerged in the report “Who Cares Wins of the UN Global Compact”, whose goal was to recommend improvements in the integration of the financial sector with environmental, social, and governance activities. Companies that implement ESG efforts are essentially articulating the company\’s purpose in the market and seeking to build a relationship of trust and transparency with its stakeholders, employees, consumers, and investors.
The text below will explain more about ESG concepts, their applications, and their relevance.
Breaking down ESG:
In E – for Environmental: addresses environmental initiatives and the environmental consequences that a the company makes. In other words, what information does athe company require to comprehend not just how environmental consequences should be perceived, but also what steps should be taken to remedy these damages? In this agenda, we can mention:
- Tthe awareness ofabout greenhouse gas emissions (GGE);
- Pproper water use;
- Solid waste and contaminant management, among other issues.
In S – for Social: includes community contributions in which the corporation is involved. Because environmental disasters primarily affect communities, they are inextricably related to the environment. But, without limiting itself to that, social policy encompasses human rights and labor laws. Aims at building actions that promote an inclusive and diverse work environment based on human rights.
In G – for Governance: encompasses compliance initiatives, i.e. corporate integrity and guidelines set in the organization to ensure conformity with its norms and rules. It might include auditing and accountability actions, as well as ensuring compliance with legislation such as Brazil\’s General Data Protection RegulationRergulation (GDPR – Lei 13.709/2018). It aims to guarantee that plans developed underneath the social and environmental agendas are implemented.
ESG inside the companies
With the increasing occurrence of natural disasters, complaints about human rights violations, and cases of corruption, people began to take a more active attitude in the selection of consumer goods, preferring to relate to businesses that sell a purpose in addition to the product. Likewise, there is an increasing number of businesses wanting to stand out and make a difference in the market. These companies not only embrace, but also emerge from the ESG agenda. By adopting the ESG agenda the organization builds a relationship with its community based on two important principles: accountability and transparency. The duty for properly sustaining this agreement and from the release of obtained results. It reveals not only the intention, but also the real commitment to the agenda.
Companies that embrace the ESG agenda add credibility in the eyes of investors by anticipating and optimizing risk management while promoting a positive impact on the market. According to an exclusive poll conducted at the request of EXAME by Betania Tanure Associados, 88% of business leaders feel ESG activities have an impact on reputation, and 72% believe they have an impact on the company\’s financial results. That’s because investors recognize that a corporation with outstanding outcomes in ESG is less likely to be involved in the medium term in an environmental accident or social and governance crisis. At the same time, consumers begin to identify more and more with the brand, becoming loyal customers and increasing the brand\’sbrand reputation.
ESG as a trend
When it comes to adopting effective ESG practices and strategies, the COVID-19 pandemic has accelerated an already rising trend. It was clear that social impact events have a direct impact on the economy, and so therefore environmental and governance should be risk factors that affect the company’s economic performance. In an increasingly globalized world, where a country\’s socio-environmental implications are not limited to its geographic borders, it is vital to develop and encourage dedication to the ESG agenda.
That is why, in terms of the ESG agenda, COP26, which took place at the end of 2021, aroused high expectations – which were met! During the conference, it was announced the foundation of an international board for sustainability standards, the ISSB (International Sustainability Standards Board). Although the UN Global Compact report introduced ESG and gave certain recommendations, it was up to companies to follow through, which has been a major challenge for entrepreneurs and investors when producing and reading the results reports. In addition to reaffirming ESG as a worldwide trend, the formation of this council will contribute to the regulation of work processes and metrics, thereby improving the surveillance of company reports.
Strategies that have a positive impact on society and the environment provide numerous benefits to your business. It adds value in terms of attracting investments, obtaining new consumers, raising brand awareness, and recruiting and retaining talented employees. Adopting ESG principles allows businesses to strengthen their position in the market while also promoting socio-environmental development, ensuring that all stakeholders benefit from their actions.
