We know that human activity, such as overconsumption, illegal poaching, deforestation and fossil fuel emissions are pushing our ecosystems towards a point of no return. And now businesses and investors are turning their attention to sustainability. Focusing on ESG strategies to do so in a bit to not only increase profitability, but their contribution to society.
What is ESG?
The ethical philosophy and concept of sustainable investment emerged at the end of the 1960s and has enjoyed a meteoric rise ever since. Today, companies must invest in accordance with a set of sustainability standards in order to be profitable. These standards are the “ESG criteria”.
Standing for Environmental, Social and Governance, ESG refers to three central factors in measuring the sustainability of an investment.
What is an ESG strategy?
Most corporate leaders understand that businesses have a key role to play in tackling urgent challenges such as climate change. But many of them also believe that pursuing a sustainability agenda runs counter to the wishes of their shareholders. However, this view is becoming outdated, especially since the pandemic hit.
An effective ESG strategy can help build resilience and secure commercial success and ESG credibility could impact who will buy from your business and who you do business with. An ESG strategy can help refine and build your business by:
- Identifying and understanding the ESG risks and the opportunities available
- Assessing and benchmarking your business’s maturity, and identifying your business and clients’ priorities
- Prioritising strategies to drive new growth, efficiency and resilience, and ensuring responsible business principles are at the core of your operations
- Developing a programme to deliver those strategies with proper governance, key milestones, and measurable targets
How as Covid impacted ESG?
The pandemic prompted the most severe market crash since the global financial crisis, but for those focusing on ESG issues, there was a relative resilience of high-rated ESG funds.
Covid-19 is testing our health, social, and economic systems, and ESG programs have been shown to hasten recovery, spur innovation and potentially help reduce risks to additional crises in the future.
The pandemic has also revealed the importance of other nonfinancial factors that impact business outcomes and are important to ESG investors, such as disaster preparedness, continuity panning, and employee benefits, like paid sick leave and flexible working arrangements.
Some companies are showing their commitment to society by proactively seeking ways to be part of the solution to the pandemic as demonstrated by Apple, Tesla, General Motors and Ford Motor Company, who are directing their resources to increase accessibility and production to critical medical supplies. Which is having a positive impact on their share price.
How can businesses implement an ESG strategy?
Now more than ever, it’s important for businesses to address and manage ESG issues that best capture the impacts on society as well as being the highest importance to internal and external stakeholders.
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