ESG stands for Environmental Social (Corporate) Governance. It's not a new term (b.2005) but has become ever-more prominent with climate change and a rapidly approaching post serious-covid world.
It provides a framework for companies to be assessed on their impact on the environment, their behaviour in terms of the the way they treat their staff, suppliers and the wider local community and how they govern themselves.
🌱 Environmental Considerations - We are living in a climate emergency so we need to ensure companies are as sustainable as possible- Do they use renewable energy for power? Do they pollute the air, water or land around them? Do they manage resources like water and have an extensive recycling programme?
👬 Social Considerations - If companies look after their employees, customers and suppliers well there will be less reliance on state intervention allowing the state itself to improve. So companies need to ensure they are inclusive & diverse and that they respect human rights with good working conditions in respect of health & safety, combined with a positive connection to the local communities in which they operate.
✍🏻 Governance - Good leadership and internal practices with transparent reporting are essential. The Board should be diverse, the company should be transparent with audits and illegal practice. Shareholder rights need to be respected and executive pay should be linked to a range of criteria, not just profit. It goes without saying that the company needs to be transparent in its sustainability reporting!
External agencies can be employed to monitor a company's ESG performance and there are many offering this service.
There is the ever-present danger of Greenwashing in this process, but independent, thorough and transparent reporting should minimise this risk, allowing the investor to make a well-judged decision on how to make a profit with a clear conscious and minimal social and environmental impact.
Ultimately a company needs to generate a profit to thrive, but as we slide towards 2050 we should all be investing in companies with immaculate ESG performances and we should demand companies to provide them.
©Ateliers Verts Ltd. 2022
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