ESG is an important part og running a successful business. It provides a framework of how businesses should run, and it is very often taken into consideration when prospective investors are searching for the right businesses to invest in. ESG is broken down into the following 3 important elements.
Environmental Issues and Policies
The environmental aspect of ESG encompasses environmental policies that will have an impact on the way the business operates, such as energy use policies, recycling policies and waste policies. Many businesses now have dedicated environmental policies, and pages on their websites deicated to showcasing their pledge to the environment. Due to climate change and it's global impact, it is necessary for businesses around the world to adopt climate friendly policies in order to collectively work together to slow down and to reduce the effects of climate change. The Target Net Zero campaign is an initiative that many businesses and organisations around the world have adopted, with the aim to reduce their carbon emmisions. In the UK, the 'net zero target' refers to a government pledge to work to reduce greenhouse gas emissions by 100% from 1990 levels. Other countries have implemented similar climate initiatives, with the global aim to collectively reduce carbon emmissions.
Social Policies
The social aspect of ESG is vital to businesses. Businesses adopt social policies that enable them to support their local commuities, employees and their customers. Social policies are also an important consideration amongst businesses when they are searching for another organisation to collaborate with on a project, enter into a deal with and also for investors who want to see evidence of positive social initiatives before they invest in a business. Common social policies for businesses include investing in local charities, services and infrasturcture in the local area, introducing wellbeing policies for employees, and improving employee health and safety within the workplace.
Governance
The governance aspect of ESG emphasises the importance of fairness within the organisation, equal opportunities, and transparency with accounting and HR policies. Investors are particularly interested in the governance of an organisation, as they often want to see evidence of fairness, equality, transparency, and a lack of nepotism before they invest in an organisation. Investors understand the importance of ESG within organisations, not only because of the benefits this has for businesses, but also because it maximises the longevity and long term success of businesses. To find out more about ESG, please visit our Strategic Approaches to Environmental, Social and Governance Programme - CMI Level 7.
Information correct as of 08.09.2023
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