Environmental, Social, and Governance (ESG) criteria are a set of standards for a company’s behavior used by socially conscious investors to screen potential investments. Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
ESG policies (Environmental, Social, Governance) in the investment sector have been around since the 1970s, but are growing in importance. Now more than ever, in addition to growth and profit, investors are demanding that company policies align with ESG metrics and guidelines. According to the Family Barometer, Sustainable/ESG/Impact Investments grew 17% as the most important investment-related topic in the last 5 years, while direct private investments grew 15% and cryptocurrencies 8%.
In 2021, PWC Recorded The Highest Rates Of Consumer Appetite For Positive Corporate Leadership: 83 Percent Of Consumers Think Companies Should Be Actively Shaping ESG Best Practices.
The numbers go up when you ask employees and their leaders.
In this climate, today’s most resilient companies should show they care about the implementation of ESG practices. Investors, customers, employees, and managers are increasingly concerned with the impact of business on the global environment. Investment (Private Equity, Hedge Funds, Venture Capital) is primed to lead the way in ESG best practices. For investors, growth is typically the ultimate goal. Growth is profit, people, productivity, and policy driven. Demands for investor transparency, operational excellence, and socially conscious, responsive corporate actions provide strategic opportunities for the investment sector to lead the way.
Global Sustainable Investment Association estimates one in three globally managed dollars are in ESG-related assets accounts. Innovative investors recognize the merit of making environmental and socially conscious business decisions.
Successfully implemented ESG-driven business outcomes can positively impact communities. The investment community should understand the importance of collaborating with suppliers, regulators, and non-government organizations (NGO’s) to build diversified employee base and culture. This also requires alliance with consumers and customers.
The opportunities here for businesses to create new value are profound, rewarding, and still uncharted. Thus, there is still vast room to make a difference. Since global disruptions will not end with the pandemic, consumers will continue to ask if companies are contributing with courage or standing with the archaic way of doing business. Now, socially motivated consumers, employees, and leaders support ESG-conscious businesses on a global scale.
As a result, sustainable customer and workforce support leads to growth and potentially higher business valuations. Action-minded consumers, employees, and investors are demanding positive corporate responsibility. Businesses that are at the forefront of implementing ESG in strategy and operations will position themselves as the leaders in their sectors.
Contributor/Written by:
Managing Partner – Bovell Financial| Problem Solver| Advisory, Accounting, Tax Expert
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