Environment, Social and Governance (ESG)- The New Era of Corporate Sustainability

ESG is a terminology that is slowly gaining importance among sustainability-enthusiasts who are aware of the fact that committing to environmental and social development will not hamper the present corporate motto of maximizing the profits. ESG, the acronym for Environmental, Social and Governance, talks about a mechanism that integrates environmental sustainability, social responsibility and efficiency in governance into an organization’s business strategies in order to maximize the outcomes in terms of safer environment, stronger community relations and sustainable investments.

Evolution of the concept of ESG

The concept of sustainability and ESG has undergone tremendous changes over the last few decades. The early industrialization and increased use of pesticides resulted in growing concerns about environmental pollution. As a result, the modern environmental movement began in 1960s, which led to a new era of social responsibility among major industries. By 1970s, many of the corporations realized the need to address environmental/social issues along with gaining profits. The concept of sustainability gained prominence by 1980s. In 1987, the United Nations Brundtland Commission defined sustainability as “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” Along with the concept of ethical investments, ESG was introduced in early 2000s, whereas in 2010s we saw how sustainability was integrated into business strategies. As the incorporation of an ESG framework promised improved reputation and increased revenues, more and more investors started looking for organizations that stayed on track with sustainable business.

Three pillars of ESG

Environment, Society and the Governing body of the business are the three pillars on which we can build the ESG framework for any Company. ‘Environmental’ refers to the effects of processes/services taking place in an organization, on its natural environment i.e., air quality, water quality and atmosphere in general. ‘Social’ component refers to the impact of a company on society and community. The ‘Governance’ aspect deals with the company’s management and administration, which is usually being mistaken as the compliance obligations put forward by regulating agencies of Government.

Environmental Sustainability in business

Managing Climate change and carbon footprint is of greater concern for industries that generate and release Green House Gases (GHGs) like Carbondioxide, methane, Nitrous oxide etc. The carbon footprint represents the total amount of GHG emissions produced by an individual, organization, product or a service. Carbon Footprint management refers to the efforts to reduce the amount of GHGs generated by human activities. The CF management involves measuring, reducing and offsetting GHG emissions. These actions include adopting energy efficient practices, minimizing waste, promoting sustainable transportation and investing in Carbon Offset projects. Another major step towards achieving environmental sustainability in business is by protecting biodiversity and promoting ecosystem services. This includes sustainable land use, pollution reduction, conservation initiatives and many such practices that benefits environment in a longer run. Incorporating cleaner and efficient energy systems by implementing Green Building Codes, providing financial incentives to suppliers/clients who provides energy efficient services and raising awareness among employees and community; will also speed up the journey towards integrating environmental sustainability into business.

Building up a socially responsible business

Encouraging positive relations by engaging local communities to understand their values and requirements through CSR initiatives and partnerships will increase transparency and accountability in business. Fostering diversity, equity and inclusion among employees will develop an environment where the workers will be valued, which in turn results in increased productivity of the company’s workforce. Abiding by labour standards and Human Rights Protocols will ensure a secured working environment for the employees. Collaborating with the consumers will help you in building brand identity, making informed decisions and also fulfilling your commitments towards them. It is also important to ensure that a responsible supply-chain management is in place in order to ensure long-term sustainability in business.

Governance and sustainability

Developing a diverse and effective governing board by choosing candidates based on merits, skills, experience and ability is the first step towards achieving sustainability through diversity. A company’s executive compensation in the form of incentives shall also align with its sustainability goals. The board level action plan also includes mitigating risks and ensuring compliances through policies and procedures. Engaging the stakeholders through reports, meetings and training programs is also a management-level exercise that can ensure sustainability in governance.