What Is Environmental Social Governance & How It Creates Value

Businesses at present focus on inducting sustainability policies. This keeps the companies aware and competitive. ESG is one of these frameworks of adherence that keeps business entities well within the discipline.

The ESG and sustainability reports also bear testimony to the company’s eagerness and intent toward greater interests. The adherence and reports create value because it invites investments. They are a prerequisite to carving out commercial success in the long run.

-Do you run some business?

In that case, please take the assistance of some ESG consultants. They help you out with their advice and guidelines. The article discusses Environmental Social Governance and the way it creates value for business entities.

What Is Environment Social Governance?

Sustainability is a larger issue that businesses, irrespective of their size, remain concerned with. According to a report it is found out that business enterprises have invested more than USD 30 trillion globally.

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Now, this is a positive development as the investments have grown 10% compared between 2004 to 2014.  Under such circumstances, ESG is quite a pertinent discussion. So let’s discuss it here in this section.

E for Environment

It can also be counted as the environmental criteria that a business has to maintain. This denotes how much energy the companies consume within a financial year. The reading also discusses the discharges that result from energy consumption. Now discharge has a direct relation with carbon emissions. This strictly denotes the emissions which the companies are responsible for, becoming criteria under the conceptual framework.

S for Social

S or the social criteria relates to the company’s relationship with the different communities. Under this circle comes the business societies, meaning the stakeholders like investors, consumers, government, institutions, communities, and others. The company’s diversity policy also comes into it.

G For Governance

Governance denotes the decision-making that company stakeholders make for the community’s best interest. Adhering to the laws and regulations and looking at the interests of the employees also come under this segment.

How Does It Create Value?

Any layman can ask a simple question, why is there such a need to fulfill the ESG criteria? The simple answer to the question is that it can create value. Gone are the days when a business entity’s value is estimated within the periphery of profits and losses. Contemporary business transcends boundaries. Now there are many other things that you need to consider. So let us try to understand the ways ESG creates value within the organization.

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Top Line Growth

Suppose the business attains strong growth. They have the full potential to fit into the environmental and social criteria. Please try to note that wider societies have different types of expectations from you.  Consumers expect good quality products with friendly costs. The wider stakeholders, like NGOs, want to have investments in philanthropic work. Shareholders want good returns. According to a survey, 70% of consumers purchased green automotive and electronic goods.

Reduction Of Costs

It is found from McKensey’s study that the companies that have adhered to the practices have been successful in reducing operating profits. This denotes that if the companies successfully reduce costs by adhering to green policies, it can change the economy.   A suitable example can be given here in this section. Companies like FedEx aim to convert their entire 35000 vehicle fleet into hybrids. This resulted in the reduction of fuel consumption to more than 50 million gallons. As a result, you can get into the company’s energy audit.

What Else?

The productivity of an employee is the ultimate aim and objective of the company. Therefore employee satisfaction goes on to become an important parameter when it comes to satisfaction levels. This is why companies engage themselves in thorough training and development of the workers.

This is not just a theory, but there is ample proof for the study. According to the London Business School expert, the “100 Best Companies to Work For” list generates around 2.3 percent to 3.8 percent of high stock returns per year. This success can be attributed to the high training and constant feeding of motivation of the employees. Therefore, you might have understood that the company can develop with the ESG framework.

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