Large-scale trends such as demographic shifts, climate change and resource scarcity have the potential to significantly impact various industries. These trends influence the long-term environmental, social and governance (ESG) opportunities and risks critical to the future success of many companies and industries.
ESG is a subset of nonfinancial performance indicators, which include sustainable, responsible and ethical business operations such as managing a company’s carbon footprint or building relationships with and supporting neighboring communities. An ESG-focused company can drive business priorities based on the positive returns and long-term impact on the environment and society.
Managing this triple bottom line is essential for companies to stay competitive, attract potential investors and drive growth. There is also an increasing amount of research showing that companies doing a good job of addressing ESG issues in their business tend to outperform companies that do not, according to The Wall Street Journal. A balance in a company’s ESG interests with the economic aspects of business can contribute to overall sustainability. This sustainable approach helps companies meet the needs of the present without compromising the ability of future generations to meet their own needs.
Environmental
Unanticipated financial losses resulting from wildfires, severe drought or sea level rise dramatically impact the global financial system, which is why there is increased interest in effective and clear climate-related disclosure from companies around the world. Companies should be stewards of the environment, with considerations around waste and pollution, water stress, greenhouse gas emissions, deforestation and climate change. ESG standards challenge companies to significantly reduce their environmental footprint and better prepare for resource shortages. For example, leaders in the power industry are proposing energy efficiency measures for buildings that result in cost-effective and sustainable results.
As the industry stays on top of changing rules and regulations, it’s critical to keep an eye on the big-picture view of environmental considerations. Companies can start to bring sustainable solutions to the table to help protect their community and the environment. For example, the chemicals, oil and gas industry is putting forth a concerted effort to better manage its water and wastewater.
Social
Industry operations and projects can have a broad impact on a range of stakeholders, from businesses to community leaders and residents. ESG standards consider how a company engages with stakeholders and treats its employees. These standards evaluate human capital, from health and safety and employee relations to labor management and health care. Companies also should consider the safety and quality of their product, and its impacts on society. Some companies with a strong commitment to ESG are establishing a philanthropic connection with the communities in which they work.
Creating and nurturing relationships with stakeholders affected by a project requires a variety of approaches. With multilayered, multichannel public engagement, companies can help stakeholders build an understanding of a project’s objective. Successful engagement relies heavily on execution of a streamlined and customized plan that ultimately guides a project along a path to success.
Governance
Governance standards address corporate policies and how a company is governed. A company should set out rules regarding tax transparency; executive renumeration; political donations and lobbying; organizational leadership diversity and structure; and preventing corruption and bribery. It should also consider anticompetitive practices, business ethics and corporate accounting.
Investors want business leaders to focus on ESG, according to Harvard Business Review. As investors and the financial sector put more weight on ESG ratings, industries will need to develop innovative approaches and alter how they direct their capital dollars to meet this new set of standards. With these new approaches will come the creation of new technologies to rise to the challenge of supporting these efforts.
Selecting and implementing smart, sustainable solutions for your projects and operations that apply to your community and environment can help make your long-term business goals more efficient and effective.