What is ESG?
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ESG stands for Environmental, Social and Governance. ESG, also known as sustainable investing, is used to screen investments based on corporate policies and to encourage companies to act responsibly. In recent years, investors have shown interest in putting their money more into ESG funds. To assess a company based on ESG criteria, investors look at a broad range of behaviours and policies.
The environmental aspect focuses on how the business minimises its impact on the environment, covering the business’s products/services, the supply chain and operations. ESG allows the business to target different areas of its organisation and implement more sustainable, ethical practices.
Examples of environmental business practices include:
· Reducing energy and using renewable energy sources to become a net zero organisation.
· Developing greener products and services.
· Switching to zero-waste products or sustainable packaging using biodegradable materials.
· Reducing carbon emissions by changing to LED lighting.
· Encouraging recycling and reducing the amount of waste destined for landfill.
Social aspects look at the company’s relationships with internal and external stakeholders. It focuses on how a business impacts wider society and workplace culture. Organisations can positively contribute to fairness in society, investing in fair and equal opportunities and conditions for employees, people working in the supply chain and local communities.
Examples of social and ethical practices in business include:
· Products are safe and customer data is safe and secure.
· Preventing supply chain abuse, such as labour rights, modern slavery and freedom of association.
· Providing training and support for health and safety and wellbeing.
· Promoting equality, diversity and inclusivity within in the workplace.
· Investing in local community projects.
Governance within ESG refers to the processes of decision-making, reporting and logistics of running the business. Ensuring companies use accurate and transparent accounting methods, purses integrity and diversity in selecting its leadership and is accountable to shareholders.
Investors in ESG funds require assurance that companies avoid conflicts of interest in board members and senior executives don’t use political contributions to obtain preferential treatment or engage in illegal conduct.
Examples of governance practices include:
· Ensuring business leaders and managers are accountable for risk and performance management.
· Undertaking business ethically, such as preventing bribery.
· Ensure diversity in any leadership team, being open about executive’s pay.