As the greater landscape of industry shifts beneath our feet, a crucial element is quietly evolving with it: the expectations of investors.
To determine the value of a potential investment, firms have begun using a specific set of criteria designed to evaluate a company’s sustainability. That is to say, how well will the company hold up to environmental scrutiny? How strong are its relationships in its social ecosystem? Is leadership transparent or will they end up in the headlines in a few years?
These questions address investor priorities that have been developing for years and the focus has been shifting toward socially responsible investing. And with ESG standards, they’ve gotten better than ever at asking them.
What is ESG?
ESG stands for Environmental, Social, and Governance. Together, these three aspects make up a framework to evaluate issues pertaining to a company’s long-term health and prosperity. For many investors, it’s not enough to check off two boxes and leave one totally blank. They’re searching for thoughtful, forward-looking policies and programs in all three of these areas.
What kind of impact is your company having on the environment?
This can encompass issues of carbon emissions, runoff, disposal procedure, pollution of all kinds, resource efficiency, biodiversity, and history with environmental regulatory bodies.
If your company is falling short in terms of environmental responsibility, well investors are only getting more interested. On the other hand, excellent environmental stewardship can show commitment and capability to follow through.
What kind of relationships does your company have with the people in its ecosystem?
This covers how your company manages relationships with its employees, customers, suppliers, partners and communities.
Here’s where your employee treatment, benefits, pay, and diversity will be evaluated along with your company values and how they have (or haven’t) been put into practice. Matters of human rights, sourcing, customer service, and customer protection will also factor into this criteria, as well as the social impact that your operations have left on the surrounding area.
How does the board of directors run the company?
This aspect involves examining the executive governance of the company. Investors will evaluate stakeholder incentives, executive compensation, bonuses, prioritized metrics of success, matters of corruption, conflicts of interest, levels of transparency, and the hierarchy of governance.
Two decades ago, a framework like this could be categorized as a special interest. Today, it amounts to due diligence. No one wants to complete an acquisition only to be unpleasantly surprised. ESG helps to surface relevant risks and liabilities so buyers can make accurate decisions based on the past, present, and prospective future of the company and make sustainable investments.
How Does ESG Relate to EHS?
ESG and EHS are naturally intertwined but are each distinct.
EHS is a business function that covers the environmental, health, and safety policies and programs of your business. It’s directly related to managing project and portfolio-based liabilities. It also covers the particulars of workforce safety and operational health policies.
ESG represents a framework used by investors to better understand your business on a wider scale. It’s your company seen through a lens of sustainability performance and liability.
Both operate on the same pillars of environmental, social, and corporate responsibility that should matter to any modern business. Those that don’t prioritize these fundamentals won’t last under the spotlight of investor, regulatory, or public scrutiny.
Why Is ESG Rising on the Radar of Business Leaders?
We’ve described ESG as a tool for investors to evaluate where a business really stands. In that light, it makes sense why ESG has become such a hot topic.
But smart business leaders are using ESG as a framework to better understand themselves. Proactively evaluating your company according to ESG factors is not only appealing to the eyes of potential investors or the public, but it gives your company the information it needs to shore up any gaps.
Diving that deep can require unearthing a lot of data. Some of that may be structured, some of it unstructured, some may be missing. Potential applicability can be unclear. Simply put, it can be overwhelming.
This is where Antea Group comes in. Our expertise in implementing the ESG framework allows us to manage all aspects of the ESG process, along with helping to foster stakeholder buy-in and clearly communicating value to relevant internal and external parties.
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