What is ESG?
ESG, as outlined by the United Nations, is a term used to highlight a company’s financial and non-financial interests that are primarily concerned with long-term sustainability and ethical impacts. ESG approaches are comprehensive and call for risks and strategic planning, measurable objectives and specialised data analysis. It is split into three elements; Environmental, Sustainability, and Governance.
In business, ESG is frequently applicable as a key indicator for choosing investments and as an impact reporting of business’ operations that positively contribute to tackling global issues. These challenges include climate change, ethical supply chains, environmental harm, and global welfare, among many other topics. As a result, ESG is now a widely accepted factor to take into account when making investment decisions, and it is progressively focused on business’ strategic and operational agendas to create value.
So today, we are going to dive deep into the first element of ESG; Environmental.
What is ‘E’ in ESG?
The “E” in ESG refers to the environmental aspect, which includes the amount of energy and waste your business consumes, the resources it requires, and the consequential effects on living things, nature and biodiversity, or in short, understanding the environmental risks. The main objective is conservation of the natural world.
There are many organisations that break down ESG factors with reporting frameworks, standards and ratings, such as GRI and SASB Standards. But holistically it serves the same purpose and that is to act as a guideline that gives an overview of how the various elements are involved in the reporting process. These are the examples of Environmental factors that we need to consider:
- Resource and waste management
- Carbon emissions
- Climate change
Why does ‘E’ in ESG matter?
Here are three compelling reasons why you should pay attention to environmental issues while running your business or organisation:
- Being sustainable is profitable.
Starting with small steps in sustainable practices such as energy efficiency practice, increasing resource efficiency, increasing reuse and recycling practices, and implementing proper waste management will contribute to the reduction of carbon emissions, cost spending, and a potential increase in fund investment. Thus, integrating ESG considerations into company decision-making frequently leads to operational efficiencies, which help to improve profitability.
- Positive brand reputation.
Businesses and organisations with environmentally responsible practices are viewed as being more reliable than those without. According to a Forbes study, 87% of respondents revealed that a company that encompasses social or environmental issues will hold a more positive reputation in their eyes. Adopting ESG policies can enhance consumer trust and loyalty, which opens doors to the increment of market share and a positive effect on brand reputations.
- Good for the environment and Mother Earth.
By putting the ‘E’ strategies into business practices, it is easier for an organisation or a business to reduce their negative environmental effects and be prepared for the challenges caused by climate change. Environmentally responsible business practices allow resource conservation, pollution prevention, and a reduction of greenhouse gas emission which will ultimately help in protecting our environment and planet.
The importance of ‘E’
In a nutshell, our impact on the environment is represented by the letter ‘E’ in ESG. The ‘E’ factor considers a company’s use of natural resources and the effects of its operations on the surrounding environment as well as the communities it serves. It is crucial for businesses to start implementing the ‘E’ factor in their business so that we can work hand in hand towards a sustainable future.
What’s next? Stay tuned for our second series of ESG – #2 Understanding the ‘S’ piece in ESG soon!
Funding Societies | Modalku strives to strike a balance between economic, environmental, and social factors in both our internal operations and our financing activities. We also want to support and guide SMEs that are making contributions in these areas, regardless of what stage they are in their sustainability journey.