Why is ESG so important?

What is ESG?

Environmental, Social, and Governance or ‘ESG’ is a set of factors for organisations that show how much they support social, environmental, and governance goals that go beyond the maximization of profits. In recent years, the importance of ESG to investors has grown exponentially. They are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities.

The concept of ESG has been around since the 1960s but the actual term was only coined in 2004 by former UN Secretary-General Kofi Annan. In 2005 the first study about ESG, “Who cares Wins”, was developed jointly with the world’s largest institutional investors and banks.

Why is ESG growing in importance?

Now in 2022, the importance of ESG continues to grow. Governments across the world are investing in the green economy and investors are looking to incorporate ESG factors into their portfolios. With the looming climate crisis and the negative impact of the COVID-19 pandemic, it is now more important than ever to ensure adequate ESG policies are in place.   Globally, ESG funds have seen huge increases and this trend looks set to continue in the coming years. Corporate Governance in recent years has also taken on a new complexity. Ensuring that employee well-being, decision-making, and stakeholders are all being managed effectively in an unprecedented and everchanging environment can be a struggle for some organisations. Having a strong ESG focus allows organisations to manage these risks now and well into the future.

How can your organisation improve its ESG focus?

To create meaningful change, it is essential to have leaders in the organisation who are committed to ESG policies. Without the introduction of policies and procedures to support your ESG goals, it will be impossible to implement them. Here are three ways to help all organisations develop their ESG policy.

Be specific

It is important to narrow your scope in terms of ESG and how your organisation can make changes.  The leadership team should choose priority initiatives for the organisation to achieve in a shorter time frame, before overhauling the whole business structure. It’s important to walk before you can run.

Link to your business strategy

Ensure that your ESG initiatives link to the overall strategic objectives of your organisation.  Focus on how ESG factors could impact your business and integrate these into your organisation’s strategy to ensure long-term success. Think of these policies as long-term risk mitigation. For example, if your organisation was aligned to servicing the oil and gas industry, applying the ESG filter to your company’s strategy would be to reduce the alignment to oil and gas, and build up your footprint in the renewables sector.

Look to the future

When thinking about ESG, it is essential to focus on the next generation of employees and consumers. The expectations that this generation has for organisations are changing. Future employees and consumers expect organisations to have strong ESG strategies that protect the environment, reduce hierarchy, and are agile and customer focussed. Pathway offers organisations the opportunity to access reliable crowd-sourced data, codifying critical Next-Gen Insights from the future cohort of employees and consumers, helping the organisation develop & embrace a successful future operating model. Use the contact form below to request a callback, on how Ingenium and Pathway can help with future insights for your organisation.

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