What is ESG and why should you care?

ESG-diverse group of staff discussing business

What is ESG and why should you care? It doesn’t matter if you are a small business owner, a supplier, a consumer, or a corporation, you are going to see ESG regulations roll out with greater frequency. Get ready because they are going to affect you.

When our corporate partners began encouraging vendors and suppliers to submit reports of how they are addressing ESG in their companies, it became obvious that we needed to learn more about it.

What ESG stands for

First off, what does ESG stand for? It stands for Environmental, Social, and Governance. Basically, it’s a way for companies to show that they care about more than just making money. These are ways that that they demonstrate they are also focused on building environmentally sustainable businesses, treating people right, and having good leadership. Good leadership, by the way, recognizes and values people precisely for those things that make them different. Fairness, transparency, equitable pay—you know, those things we’ve been addressing in the realm of DEI (diversity, equity, and inclusion).

Advantages of ESG

Now, let’s talk about the advantages of ESG. First and foremost, it helps the environment. By complying with ESG stipulations, companies, at the very least, become more aware of their impact on the planet. The ‘Social’ in ESG encourages companies to be more socially responsible. That means treating their workers and communities better. The ‘G’ is for Governance—when a company has good governance, it’s less likely to have scandals or tolerate unethical behavior.

Disadvantages to ESG

But, like with anything, there are also some disadvantages to ESG. For one, how can you measure how much of an impact a company is actually having? It becomes even more difficult to quantify those efforts in an area that is currently being developed. For example, companies might say they’re doing more than they actually are—how can we build in accountability? (Psst—by measuring results using equivalent base lines). On top of that, some people think that ESG takes away from a company’s focus on generating a profit, which could hurt its bottom line. What would happen if we begin to calculate ‘true profit’ by tying the cost of generating a company’s profit to its global ESG impact?

So there you have it in brief: although ESG has pros and cons, it is overall a step in the right direction, and here is a more detailed overview:

Significant wins in ESG

The good news is that there have been some significant wins in the ESG space recently.

Investing

Increased Adoption: ESG investing has gained more widespread adoption, with more investors seeking to incorporate ESG factors into their decision-making processes. This has led to more demand for ESG investment products and a growing number of ESG investment options.

Corporate commitments

Many large corporations have made commitments to reduce their carbon footprint and promote sustainable practices. For example, Amazon has committed to achieving net-zero carbon emissions by 2040, while Microsoft has pledged to be carbon negative by 2030.

Renewable Energy

The adoption of renewable energy sources has been growing rapidly, with solar and wind energy becoming increasingly competitive with fossil fuels in terms of cost. This has led to a shift away from coal-fired power plants and a reduction in greenhouse gas emissions.

Shareholder Activism

Shareholders are increasingly using their power to push companies to adopt more sustainable practices. For example, in 2020, a group of ExxonMobil shareholders successfully pushed for the election of board members who are more supportive of the company’s transition to cleaner energy sources.

Overall, these wins show that ESG is becoming more important and mainstream, and that progress is being made towards a more sustainable future.

How does ESG affect suppliers?

Why are corporations urging their suppliers to comply with ESG standards? There are several reasons.

Suppliers have significant impact

First of all, companies are increasingly recognizing that their suppliers can have a significant impact on their own ESG performance. For example, if a company is committed to reducing its carbon footprint, it may find that a significant portion of its emissions come from its supply chain. By requiring suppliers to comply with ESG standards, companies can help to reduce their own environmental impact.

Attracting and retaining customers

Second, customers are increasingly interested in the ESG performance of the companies with which they do business. By ensuring that their suppliers meet certain ESG criteria, companies can provide assurance to customers that their products are being produced in a socially and environmentally responsible manner.

Investors

Third, there is a growing expectation among investors that companies take ESG factors into account in their decision-making processes. If a company’s suppliers are not meeting ESG standards, this can be seen as a risk factor that could affect the company’s reputation and financial performance.

Corporate responsibility

Finally, companies have a responsibility to ensure that their operations do not have a negative impact on society or the environment. By requiring suppliers to comply with ESG standards, companies can help to ensure that their supply chain is ethical and sustainable.

In summary

In summary, as individuals, consumers, business owners, and employees we need to first and foremost educate ourselves about what ESG is. Secondly, by considering the many and varied roles we play in supporting and implementing ESG, we can boost iand expedite ts effect. Third, by supporting our suppliers, buyers, and consumers in their attempts to comply with ESG, we can all help reduce our own environmental impact, meet customer expectations, address investor concerns, and act responsibly towards society and the environment.

What is ESG and why should you care?