Environmental, Social and Governance (ESG) for Dummies

Recently, qualifying criteria known as Environmental, Social and Governance (ESG) has become a popular way for investors to screen potential opportunities. This is because these measures can give an overview of a company’s core values and morals, which is becoming increasingly important for investors to consider.

In the transition from investors in the ‘boomer’ generation to those born in the millennial era there has been a growth in emphasis on social accountability.

As markets become more saturated with millennial investors, it is important to make sure you are appealing to this shift in focus by ensuring that your company’s brand image remains positive under these criteria.

What is Environmental, Social and Governance (ESG)?

Environmental, Social and Governance (ESG) are qualifying criteria used by investors to assess their potential investments. They are a tool to help analyse the values and social image of a company to assist decision making and allow investors to clearly see the benefits (or drawbacks) of their options.

  • Environmental: Concerned with the impact that a company has on the environment.
    • This can be through general quantitative aspects, such as a site’s energy efficiency or waste production, but also through goals and plans for the future.
    • The goal is to have a positive or neutral impact on your surroundings to measure well against this standard.
  • Social: Centres on the relationships between a company and their customers, suppliers and employees.
    • Regards interpersonal relationships, and contrary to quantitative data, is often flexible in its interpretation.
    • This also includes the interactions between the company and the surrounding community.
  • Governance: Refers to the business side of the company, such as leadership or hierarchy and dependable, accurate records.
    • Looks for stability in processes and policies to decide how risky an investment would be.
    • Helps investors to ensure legitimacy of companies to avoid partnering with high-risk options.

Overall, the three come together to produce an image of the company as an overview of values, which is then compared to its peers, therefore allowing investors to differentiate options and make a decision that best suits their own values.

How does this relate to HSE?

Reporting Environmental, Social and Governance (ESG) may be a task that HSE professionals will have to take on, given its rising popularity among investors. Fortunately, this provides an opportunity to see ideas on how your company could improve in these areas by comparing it to its peers.

For HSE specialists, the most used of the three criteria are Environmental and Social, since these factors lie within the responsibilities of the roles. By managing these aspects, you can improve the entire company’s Corporate Social Responsibility (CSR) status.

What is Corporate Social Responsibility (CSR)?

This is the concept of a company’s social accountability to itself, the public and its stakeholders. In order to do well in this area, a business needs to be conscious of its impact on society in terms of economic, environmental and social respects.

Corporate Social Responsibility (CSR) as a metric of measuring a company’s reputation has risen exponentially in importance among the investors of today.

The benefits of ensuring investment in companies with positive social image or Environmental, Social and Governance (ESG) rather than those with disreputable or hidden values means that the risk of losses through scandal are given upfront and can therefore be avoided carefully.

By considering the influence that potential investments have on society, investors also boost their own social image by appearing conscientious and considerate of the current social and environmental climate.

Using these standards as a measure of a company’s prospects simplifies investment deliberations and allows an easier way to make comparisons between peer companies.