Environmental, Social and Governance (ESG) covers some fundamental principles that underpin your business. Increasingly, customers, shareholders, suppliers and the wider community expect businesses to be aware of the world around them and to have an approach – backed by policies – that demonstrate their commitment to acting professionally and responsibly.
Businesses that adopt ESG in the right spirit see considerable value in building a better working environment and creating a positive impact on people, planet and profit. Using ESG principles, these businesses are able to create a clear framework that influences their culture and working practice.
According to the KPMG report ESG: Environmental, Social, Governance, An introductory guide for businesses (July 2020), there are several key elements that sit under each of the ESG headings:
Environmental: Your impact on the world
· Climate Change
· Greenhouse gas emissions
· Natural resource depletion
· Waste and pollution
· Deforestation
· Hazardous materials
· Biodiversity
Social: Your contribution to community
· Working conditions
· Impact on local communities
· Conflict regions
· Health and safety
· Employee relations and diversity
· Product mis-selling
· Data protection
Governance: How you conduct yourself
· Executive pay
· Bribery and corruption
· Political lobbying and donations
· Board diversity and structure
· Tax strategy
· Data breaches
These ESG areas can help to guide some of your key business decisions and help you update and maintain your risk register. But, in general, ESG is about making sure your business is making ethical decisions that benefit the people who work for you, the businesses that work with you, your customers and the community around you.
Why is it important to get on board with ESG?
There are several reasons why your business should be taking ESG seriously:
You may be required to – increasingly, regulatory bodies, governments and professional associations are requiring businesses to demonstrate their commitment to ESG principles. You may need to start reporting annually on your approach to climate change, for example, or your work towards the United Nations’ Sustainable Development Goals (SDGs)
Stakeholders want to see it – your stakeholders are all the people who have an investment in your company: your customers, your employees, your suppliers, your neighbours and anyone with a financial stake. All these groups want to see that you are taking your responsibilities seriously and your business will benefit – both reputationally and financially – if you are genuinely committed to getting ESG right.
It helps your risk planning – whilst we would always say that ESG is about the attitude and approach of your company before anything else, there is certainly a benefit to using it to inform your risk planning. It covers three key areas of impact that your business has. And it can be extremely useful to help you put policies or procedures in place for tackling issues that may cause harm to your business, such as events related to climate change – or indeed, to a global pandemic.
How to get started
When you start to look at ESG, you might discover that you are already doing some of the things that it asks for, simply as part of your general attitude to business. The first thing to do is to assess your current approach and identify where the gaps are – and what you can do about them. Then you can begin to build an ESG strategy that includes targets, opportunities and measures, so that you can confidently report on your progress.
Think about how working towards a better ESG approach can influence your business strategy and planning, potentially opening up your business to new customers and having a positive impact on your bottom line.
To find out more about how to approach ESG as part of your business planning, please get in touch.
Please note: This is not meant to constitute professional advice. It is generic guidance only and things may have changed since it was written –please always seek specific & tailored advice for your circumstances.