What is ESG (Environment, Social and Governance)?
ESG stands for Environmental Social Governance and exist as a function that supports organisations to conduct businesses in a responsible manner in relation to our natural environment and wider society. The environmental component focuses on minimising the impact the organisation has on our plane. The social element seeks to address societal inequities working with charities. The governance aspect ensures leadership has ethical oversight.
ESG, alongside DEI is another barometer by which businesses are judged to be responsible and adding social value. ESG also acknowledge three of the key current contemporary challenges our world faces and is the business driver within organisation that seeks to change practices or intervene to address these challenges. As with DEI it is important to breakdown the acronym into its component parts.
Environment
Environment focuses on the sustainability of our planet and will work with the facilities and logistics functions of within business to minimise harm to the environment as a result of the business operations/practices. Focus and intensity will vary depending on the nature and size of the business but generally, focus will be on reducing waste, carbon emissions and disturbance to nature and wildlife. As with DEI objectives, ESG objectives needs be set and measured. Public concern, media coverage and legislation in response to climate related incidents require increasing focus here and the need for greater accountability.
Social
Social focuses on societal issues, which might be local and or international depending on the geographical scope of the business. This work is often conducted via an HR or DEI department or a charitable foundation funded by the business but managed separately.
The foundation will usually fund a programme of interventions via smaller charities with specific expertise and catering to marginalised groups or particular causes. Charities receiving funds from the foundation should expect to report on their use of the funds and capture evidence of activity and progress. This area of work has traditionally been termed CSR, Corporate Social Responsibility.
Governance focuses on probity and ethics and will look to ensure that the business and supply chain are behaving with integrity and complying with legislation. Board members must hold the executive accountable for legal compliance through established policies. Examples include fair competition and business practices, prohibiting enslaved labour, protecting personal data and preventing financial misuse or corruption.
Failure to adhere to ethical policies will expose the business to serious risk both legally and reputationally. Increased board diversity, where a range of expertise, experiences, identity characteristics and backgrounds are represented, can enhance an organisation’s governance efficiency.
Following the first Mckinsey D&I report in 2015 and subsequent reports (click here), the correlation between board diversity and high performance and improved governance is clear.
