What Is ESG: Environmental, Social, Governance?

Today’s business landscape is changing at an astonishing pace. Traditional values, practices, and investment moves are shifting rapidly and the new rules are here to stay for the foreseeable future. If you are an entrepreneur, business owner, or investor, you might have heard of the term ESG: Environmental, Social, Governance. You might even have an idea of what stands behind it and how corporations across the world are adapting to this particular mindset. However, you might not know just how important ESG is — even for small companies and startups.

Over 60% of modern startups are implementing ESG practices as part of their organizational structure. Meanwhile, investors from all across the business spectrum are inclined to pour capital in ventures that also utilize ESG investing. Needless to say, in order to be successful, each and every business needs to adhere to ESG guidelines.

In this article, we will take a look at what exactly ESG is and explain the principles behind it in detail. We will also outline why it is essential for businesses of all sizes and the various benefits it offers.

What Is ESG?

As we already mentioned, ESG stands for Environmental, Social, and Governance — the three main areas that the term concerns. The mindset behind it is that businesses are responsible for influencing positive change in those areas through investment, leadership, and example. Today’s society pays close attention to such issues and businesses of all sizes are scrutinized more than ever. A company that wants to be successful needs to invest in ESG and take decisive actions when it comes to its stance on the environment, society, and governance.

Both businesses and investors are required to look beyond their bottom line and see themselves as integral parts of society with the power to influence it for the better. Ironically, the ESG approach to investing is proven to directly affect the profits and success of a business — we will take a look at some specific examples later in the article.

Let’s dive deeper into each of the three areas that ESG covers and see what exactly they include.

Environmental Issues

Clean water, green and sustainable energy, and human health are some of the main topics that ESG attempts to tackle. Fighting climate change and reducing pollution has been one of the top priorities for many big corporations over the last decade. However, businesses of all sizes need to take active steps to make the world a better place to live.

In recent years, the public focus on working conditions, diversity, equity, and inclusion has increased exponentially. The social aspect of ESG also covers internal company culture, workplace health, and overall business integrity. Businesses that invest in those hot issues enjoy great employee loyalty, increased productivity, and good press coverage.

Governance Issues

Nowadays, both small and large enterprises are in the public eye more than ever before. Every executive decision and practice is under intense scrutiny, both from shareholders and the public. ESG principles promote corporate transparency, board accountability, freedom of information, and shareholder protection. Businesses that invest in ESG have better financial productivity.

Why Is ESG Such an Important Topic Nowadays?

The overall shift in demographic mentality across the globe is forcing more and more companies to adapt to the ESG investment mindset. According to research, society not only expects but also demands that corporations take a firm stance on such issues and back it with action. A company’s approach to ESG directly reflects on their revenue — today’s consumers will actively buy from and support a company that has been proactive on issues that they care about. Moreover, people will actually avoid buying from companies that do not share their views on environmental, social, and governance topics.

Brands that do not adhere to the ESG mindset also face intense criticism on social media. Sometimes, this criticism evolves in a movement against the brand, resulting in appeals to “cancel” it and boycott its business. As you can see, companies that ignore the implications of ESG are not safe in today’s environment.

Why All Companies Need to Adopt the ESG Mindset

We are not talking only about international enterprises — if anything, they are more resilient to such attacks, since they have the capital and PR capabilities to weather the storm. On the other hand, small and medium enterprises are at an increased danger of being boycotted or “canceled.” A black PR campaign against a startup will certainly rob it of any chances of success rather quickly.

Investing in ESG practices means that your business is stable, sustainable, and profitable in the long run. Those are the exact qualities that investors are looking for during their decision-making process. ESG-compliant businesses attract more investors because they have the biggest chance to grow and be successful. On top of that, the governance principles of ESG make companies act with more integrity, transparency, and accountability.

As we already mentioned, investing in ESG will work wonders not only when it comes to PR and marketing, but to employer branding as well. ESG-compliant companies are more likely to attract and retain the best people the market has to offer. Keep in mind that the largest portion of active workers are millennials, while Gen Z is currently entering the workforce. Both of those groups are heavily influenced by ESG principles and expect them to be applied in the workplace.

Conclusion

Investing in ESG has been around for some time now, but is now considered the law of the land. In order for your business to thrive, no matter its size and scope, you need to start implementing such policies. The benefits of ESG are too great to miss out on. On the other side, the dangers of not being ESG-compliant are a threat you cannot afford to ignore.