What is ESG?

ESG is an acronym for Environmental, Social, and Governance. These are the three central factors in measuring the sustainability and societal impact of a company. They are especially significant in the context of investment decisions. ESG can be seen as the building blocks for evaluating a company's performance in terms of sustainability and ethical practices.

The three key areas of ESG are:

Environment

This encompasses a wide range of eco-friendly policies, such as corporate climate policies, energy usage tracking, pollution control, animal welfare, and conservation of natural resources. It also takes into account indirect greenhouse gas emissions and environmental regulations. In today's context, environmental strategies are often centered around climate change mitigation, hence ESG frequently refers to Net Zero goals.

Social

This area covers aspects like employee safety, health, working conditions, and diversity. It also includes human rights, which is particularly crucial for companies with a supply chain. Consumer protections also fall under this category, helping to shield companies from potential lawsuits. It also involves ensuring that suppliers adhere to the company's ESG standards.

Governance

This involves maintaining transparency for potential investors. This includes clearly outlining the management structure, providing clear board oversight, managing employee relations to attract top talent, and closely monitoring executive compensation.

ESG is crucial for a business as it provides a clear framework to identify potential risks and avoid pitfalls. A truly sustainable business is more agile and resilient, better equipped to handle sudden market shifts. ESG frameworks are also used by investors as a risk management tool.

The ESG criteria include, but are not limited to:

• Reducing carbon emissions
• Using energy-efficient practices
• Addressing water scarcity
• Combating pollution
• Waste management strategies
• Observing human rights
• Meeting labor standards
• Measuring customer satisfaction
• Promoting gender equality
• Protecting data
• Displaying executive compensation policies
• Having anti-bribery and corruption policies
• Implementing whistleblower schemes.

ESG investing involves assessing companies based on their ESG performance. Companies that engage in risky or unethical practices are naturally riskier investments. Brokerage firms offer exchange-traded funds (ETFs) and mutual funds that focus on ESG. Robo-advisors also promote ESG options. Investing in companies with strong ESG performance is common and is also known as impact investing or socially responsible investing.

Benefits of ESG include:

Investment returns

• Companies with a strong adherence to ESG standards are more attractive to investors.

Attract new customers

• Around 75% of people say they prioritize companies that ethically source their materials.

Encourage forward-thinking decisions

• An ESG strategy gives you a clearer view of how your business functions, enabling better informed decisions.

Retain employees

• 65% of workers would be more likely to work for a company with robust environmental policies 

Cut costs

• Companies that prioritize ESG are more resilient and better financially prepared for market changes.

With so many factors to monitor, establishing an ESG strategy can seem daunting. However, an ESG reporting tool can significantly aid in supporting your strategy. It can assist you in formulating a sustainable strategy, gathering data, and reporting more effectively.

Compliance

There have been instances where companies have fallen short in reporting their ESG policies. A centralized platform can ensure that all your data complies with legislation and is not misrepresented.

Time-saving

Manual processes can be time-consuming, and many organizations don't have time to spare. An ESG reporting tool can minimize routine tasks and make the reporting process more appealing.

Collaborative

ESG should not be the responsibility of a single individual. The easier it is for team members to collaborate, the better. A reporting tool can facilitate this and reduce the risk of duplicate entries or redundant work.

Streamline data

Data silos can complicate any form of reporting. If the data is fragmented, you won't have a clear understanding of the situation. A centralized platform will house all the data you need.

If you're interested in delving deeper and learning how to kickstart your own ESG strategy, we've crafted a straightforward guide to assist you. You'll discover:

• How to set your ESG goals
• How to initiate your strategy
• How to leverage the tools and resources at your disposal

For further information, download our complimentary guide today.

Sustainability is a key value for us, and we're dedicated to helping every organization create a more sustainable world while safeguarding their profitability against various challenges. 

Through tools like real-time payroll and enhanced workforce management, MHR has been driving innovation in businesses for nearly four decades.